Page 1

Annual Report 2006


Annual General Meeting The Annual General Meeting will be held on Tuesday 24 April 2007 at 4 p.m. at Sommen Forum, Hamnparken 2, Tranås, Sweden.

• Share split, through which each existing

Shareholders wishing to attend the Annual

share split combined with an automatic

General Meeting must:

redemption procedure. Through this proce-

share, of Class A and Class B shares, is

• be entered in the share register held by

dure, shareholders will receive three new

divided into four shares, one of which

the Swedish Securities Register Centre

shares and a redemption share which will be

will be designated redemption share.

(VPC AB) by Wednesday 18 April 2007.

redeemed for SEK 20. The proposal means

• notify the company no later than Friday

• Reduction of the share capital for

that about SEK 154 million will be paid to

repayment to the shareholders through

20 April 07 before 1 p.m.: OEM Interna-

the shareholders in addition to the proposed

reduction of 7,723,103 redemption

tional AB Box 1011, 573 28 TRANÅS,

cash dividend.

shares, entailing 1,589,032 Class A shares and 6,134,071 Class B shares.

Tel. +46 (0)75 24 24 000 or info@int.oem.se

• Increase of the share capital by SEK

Shareholders who have registered their

In brief, the proposal means that

shares in the name of an authorised agent

• The company carries out a 4:1 share split.

9,653,878 and 75 öre through a bonus

must temporarily register the shares in

• Every fourth share, the redemption share,

issue, whereby the company’s non-

their own name with VPC by no later than Friday 18 April 2007, in order to participate at the Annual General Meeting.

will be automatically redeemed for SEK 20.

restricted equity is to be used.

• The proposed record day for the share split is 18 May 2007. • Shareholders interested in selling their

BUSINESS The agenda and business of the Annual

DIVIDEND

redemption shares before the redemption

General Meeting will be notified through

The Board of Directors propose that the

takes place will be able to do so during

advertisements in the daily press and will

Annual General Meeting issue a dividend of

the period 21 May-7 June 2007 when

also be available on OEM’s website

SEK 8.50 per share for 2006 and stipulate

trading in the redemption shares is

(www.oem.se). The agenda can also be

Friday 27 April 2007 as record date. If the

scheduled to take place on the

obtained from the company when

Stockholm Stock Exchange.

registering to attend the meeting.

Annual General Meeting adopts the proposal, it is expected that dividends will be distributed on Thursday 3 May 2007 to those entered

• Payment of the redemption amount is expected to be carried out on 15 June 2007.

FUTURE REPORTS Interim report, Jan-March 24 April 2007

in the share register on the date of issue. The redemption procedure is pursuant to

Half-yearly report, Jan-June 26 July 2007

4:1 SHARE SPLIT COMBINED WITH

resolutions by the Annual General Meeting in

Interim report, Jan-Sept 26 October 2007

AN AUTOMATIC REDEMPTION

April 2007 on, in principle, the following items.

Financial statement, 2007

PROCEDURE

• Amendment of the Articles of Association

Annual report 2007

Feb 2008

March/April 2008

To facilitate trading of the company shares

so that limitations on the number of shares

and alter the company’s capital structure,

is increased from 5,000,000-20,000,000

The latest information about the company

OEM’s Board of Directors proposes a 4:1

to 10,000,000-40,000,000.

is available on our website (www.oem.se).


Contents

Share trends

Annual General Meeting — Future reports This is OEM International

3-4

History

3-4

2006 in brief

OEM has been listed on the Stockholm Stock Exchange since 1983. More information about OEM is available on our website: www.oem.se

2

5

Comments from the CEO

6-7

Vision

8

Business concept

9

Financial objectives

Read more about OEM shares on pages 76-79

10

Growth strategy

11

Employees

12-13

Quality, the environment and ethics

14-15

Board of Directors

16-17

Senior Management

18-19

Group structure

20-21

OEM Automatic

22-23

OEM Electronics

24-25

Cyncrona

26-27

Development

28-29

This is OEM International OEM International is a leading player in industrial

Acquisitions and expansion

30-31

Central warehouse in Tranås

32-33

Close partnerships key to

34-35

FOUR COMPANY GROUPS. The Group is organised into four company groups. Three groups are organised according to their distinct brand

trading in northern Europe. The Group is comprised of 23 operating units in ten countries.

successful launches

Financial reporting

37

Five-year Group summary

38

Key indicators for the last five years

39

Directors’ report

SUPPLIERS

CUSTOMERS

40-41

Financial reports — the Group

In brief, the business concept is to sell components and systems from leading

Income statement Balance sheets

42

manufacturers to industrial companies in northern Europe. Customers are

43-44

Changes in shareholders’ equity

45

offered extensive product and application knowledge and a broad spectrum

Cash flow statement

46

of components and systems.

Financial reports — Parent company Income statement Balance sheets

concepts and one company group, Development, is a collection of other business activities.

47

50

Cash flow statement

51

OEM Automatic

OEM Electronics

Cyncrona

Development

own subsidiaries and thereby assumes responsibility for marketing and sales

Components for industrial automation.

Appliance and circuit board components and EMC/microwave components.

Production systems and components for electronics production

Bearings and bearing solutions, motors and transmissions, seals and pumps

Read more on pages 22-23

Read more on pages 24-25

Read more on pages 26-27

Read more on pages 28-29

activities for traded products.

48-49

Changes in shareholders’ equity

In simple terms, OEM operates as an alternative to the manufacturers’

Notes with accounting principles and financial statements

52-73

Proposed allocation of profits

74

Auditors’ report

75

OEM shares

76-77

Shareholder structure

77

Key indicators for OEM’s shares

78

Ownership data

79

Share capital trend

79

Addresses

80-81

Definitions

82

History

1974

1981

1983

The agency company OEM Automatic AB is founded by the Franzén and Svenberg families.

The first overseas subsidiary is established in Finland.

The company is Industri AB introduced on Reflex the Stock is acquired. Exchange’s OTC list. Sales amount to about SEK 30 million.

1986

1988

1989

Sales exceed The first SEK 100 million subsidiary for the first time. outside Scandinavia is set up in the UK.

1991

1993

1996

1997

1998

1999

OEM International AB is formed and becomes the Group’s parent company. The electronics product area breaks away from OEM Automatic to form a separate company, OEM Component.

The A. Karlson Group is acquired.

New Group structure. The companies are divided into two subgroups: OEM Industrial Components AB and OEM Systemteknik AB.

OEM InternaThree corporate Four corporate tional AB and acquisitions are acquisitions are Cyncrona AB, completed. completed. also listed on the OTC list, merge. Cyncrona becomes a third subgroup.

2000 Jörgen Zahlin is appointed new MD.

2002

OEM suffers significant decline in sales due Acquisition of to downturn the group JMS in telecomSystemhydraulik. munications.

2003

2004

The Group stabilises at sales 30% lower than 2001.

OEM celebrates Acquisition of 30th anniversary. Telfa AB.

Industri AB Reflex is sold.

Continued restructuring and streamlining increase profit by 55%.

2005

2006 The Group establishes itself in the Czech Republic through the acquisition of EIG. Divestment of company group JMS Systemhydraulik.


The Group in figures

2006

2005

Net sales

SEK m

1448

1366

Profit after net financial items*

SEK m

127.5

112.6

Profit divested business unit

SEK m

90.8

81.6

Profit for the year

SEK m

181.6

88.8

Earnings per share:

SEK

23.52

11.49

Cash flow per share:

SEK

14.68

9.79

Shareholders’ equity per share:

SEK

82.96

61.88

Proposed dividend per share

SEK

8.50

7.00

Earning capacity of shareholders’ equity:

%

32.5

19.7

Equity/assets ratio:

%

67.2

62.5

SEK

189.00

163.50

SEK m

1460

1238

No.

531

494

Quoted price at year-end Market capitalisation at year-end Average no. of employees*

*) Remaining business units

2006 in brief

OEM’s continued streamlining and restructuring measures have resulted in:

• Net profit escalated 105% to SEK 182 million (89). • Sales for the remaining business units amounted to SEK 1.448 million (1.366). • The acquisition of EIF spol.s.r.o. in the Czech Republic, a company active in the automation component section with reported sales of about SEK 29 million. • Divestment of JMS Systemhydraulik. at a purchase price of SEK 120 million.

• OEM Automatic’s sales climbed 15% to SEK 698 million (605) and profit 22% to SEK 91.0 million (74.7). • OEM Electronics’ sales rose 1% to SEK 307 million (305) with a profit of SEK 18.8 million (24.7). • Cyncrona’s sales totalled SEK 245 million (284) and profit SEK 14.2 million (18.5). • Development’s sales climbed 31% to SEK 213 million (162) and profit 55% to SEK 13.0 million (8.4). • JMS Systemhydraulik’s sales reached SEK 139 million (157)* and profit SEK 15 million (11.1)*. The business unit was divested as per 30 November 2006.

*) The figures for 2006 are for 11 months.

2006 IN BRIEF ❚ OEM ANNUAL REPORT 2006

5


Comments from the CEO 2006 was a record-breaking year for OEM. Profit reached an all-time Group high of SEK 182 million. The company’s sales have risen over the past two years and profit has improved for the fifth consecutive year. Profit from divested business units amounted to SEK 90.8 million.

HIGHER PROFITS FOR OEM AUTO-

OEM Electronic’s profit dropped 24%. The

DIVESTMENT OF

MATIC, JMS SYSTEMHYDRAULIK

decline is attributed to the conclusion of a major

JMS SYSTEMHYDRAULIK

AND DEVELOPMENT

deal and that we phased-out a supplier after they

All shares in the company group JMS System-

OEM Automatic reports yet another record-

altered their market strategy. Implemented

hydraulik were sold to Specma Hydraulic AB,

breaking year. Reported sales rose by 15%

market investments have generated good

part of Investment AB Latour in the autumn 2006.

and profit by 22%. Our coordinated logistics

growth in certain areas, putting total sales on

JMS Systemhydraulik was divested because it is

means that we now deliver to customers in

par with last year.

a relatively small player on a large market. The

Norway and Denmark from the Swedish ware-

group was acquired in 2000 at a purchase price

house, resulting in greater efficiency and better

Cyncrona’s sales dropped 14% causing profits

customer service. Demand in general is high,

to drop 24%. Parts of sales have been transferred

which means that we have sound growth and

to commission transactions.

profitability on all markets.

6

of SEK 30 million and sold for SEK 120 million.

EXPANDING OUR CONCEPT Our brand concept/company groups are more

ACQUISITION IN

competitive and stable. Interaction between the

JMS Systemhydraulik continued to develop

THE CZECH REPUBLIC

companies means greater employee mobility

well during the year. Implemented streamlining

EIG Spol. s.r.o., a company based in the Czech

between different countries. Collaboration and

measures improved profits by 35% despite no

Republic, was acquired in April. The company

transcending cultural differences are essential

change in sales compared with last year.

trades in automation components and has reported

to future growth. The circumstances for

sales of SEK 29 million. EIG represents several

continued geographic expansion increase as

Development also made positive progress.

of the most important suppliers that OEM

our concept grows stronger.

A sound demand, implemented streamlining

represents, facilitating considerable synergy

measures and acquisitions resulted in a 31%

effects on new markets. The acquisition lays

CONTINUED FOCUS ON ACQUISITIONS

increase in sales and a 55% increase in profit

the foundation for expansion in both the Czech

Only one company was acquired in 2006, which

for the group.

Republic and Slovakia.

was below our target. The reason is that we

OEM ANNUAL REPORT 2006 ❚ COMMENTS FROM THE CEO


allocated a larger than planned portion of our

THANK YOU FOR A SUCCESSFUL YEAR

management resources to developing our

I want to take the opportunity to extend a

existing business units and many of the evaluated

profound thank-you to all employees for their

acquisitions were found to have insufficient

excellent efforts throughout the year. OEM’s

potential or were incompatible with our business

achievements are backed by employees who

“A profound thank-you to all employees for their excellent efforts throughout the year. OEM’s achievements are backed by employees who have created competitive business units through their dedication and conscientiousness.” activities. Acquisitions remain a prominent

have created competitive business units through

aspect of our expansion strategy and

their dedication and conscientiousness.

acquisition activities will increase this year.

Our constant efforts to strive for efficiency and create value for our customers are why we

BETTER EQUIPPED FOR THE FUTURE

never stop developing. I therefore have every

A strong balance sheet, a strong leadership culture

confidence in the future.

and a well established reporting structure means that we are fully prepared for continued expansion. Broader customer and supplier bases compared with the start of 2000 will cut our risks in the face of future downturns. The introduction of several industrial trading companies on the Stockholm Stock Exchange makes us part of a new segment on the stock market, giving us exciting opportunities to compare ourselves with our competitors in the future.

Jörgen Zahlin


Vision OUR VISION

boards. OEM chooses to trade in products to

on new geographic markets as they grow in

OEM International is to be a leading player in

which the company adds value and that allows

strength.

industrial trading in northern Europe.

the company to gain a substantial market share.

The company is active in Sweden, Finland,

We constantly expand our range by adding new

Norway, Denmark, Poland, the Czech Republic,

products and discontinuing unprofitable products.

Slovakia, the Baltic countries, the UK and Holland.

To achieve this vision means: • constantly improving our knowledge and service • products that at least equal customer expectations

“OEM International is to be a leading player in industrial trading in northern Europe.”

• making our suppliers market leaders • efficiency makes us more profitable than

Each company markets a clearly defined product

In addition, the company has a logistics and

range which, coupled with the added value of

quality company in China. While there is

• our employees can realise their ambitions.

the organisation, forms a brand concept.

great potential for growth on these markets,

INDUSTRIAL TRADING

NORTHERN EUROPE

Our product range spans from basic mechani-

Most of OEM’s business activities are in

cal components such as seals and couplings to

Sweden but it considers northern Europe

complete production systems for circuit

its market. The brand concepts are launched

our competitors

new geographic markets will be constantly

8

OEM ANNUAL REPORT 2006 ❚ VISION

evaluated.


Business concept OUR BUSINESS CONCEPT

To our customers, collaboration with OEM means:

OEM is a leading industrial trading Group

• access to a broad, extensive range from

operating in northern Europe. Our product range consists of industrial components and systems from suppliers that are each specialists in their fields.

specialised manufacturers • quick and high delivery capacity via effective warehouses • the option to reduce the number of suppliers.

The operating units are to adapt to the

• in-depth product and application knowledge

conditions that apply in each respective business area and effectively satisfy the interests of

An efficient logistics apparatus enables us to adapt

Coordination

customers, suppliers, employees and share-

purchasing volumes, stock levels and transport

Logistics, range development and market

holders.

methods for maximum competitiveness.

communication is coordinated at concept

OEM’s broad, extensive product range

level which intensifies our competitiveness

BUSINESS LOGIC

allows the company to customise its offers to

In simple terms, the OEM Group’s operating

best suit the needs of our customers. At the

units serve as an alternative to the suppliers’

same time, suppliers gain access to customer

Stimulated by each other’s success

own local sales companies.

groups that they themselves have difficulty

The business units are regularly compared

contacting.

and internal ranking lists stimulate both cross-

The Group collaborates with around 300 different suppliers and has some 20.000 buying

and makes us more cost effective.

company learning and better performance.

customers. OEM is responsible for the marketing

GROUP AFFILIATION STRENGTHENS

and sales of the products concerned.

COMPETITIVENESS

Opportunities for employees to grow within

Belonging to a group with a clear focus enhances

the Group.

the conditions for the company to grow.

Developing a company means developing

Among other things, Group affiliation means:

people. As the company develops, career

SUPPLIERS

CUSTOMERS

opportunities are created for employees both

An alternative to suppliers’ own sales organisations

Economies of scale

within the respective company and within

To our suppliers, OEM is a partner that has:

A centralised infrastructure and administration

the rest of the Group.

• the competence and financial strength

makes it more possible for operating units to

to make market investments

focus on business and eases geographic

• knowledge of the market in question

expansion in areas where another part of the

• national organisations that transcend

Group is established.

cultural differences

BUSINESS CONCEPT ❚ OEM ANNUAL REPORT 2006

9


Financial targets OEM’s objective is to achieve a good return on shareholders’ equity with limited financial risks during a period of stable growth.

The targets for one business cycle are:

the business units generated a 15%

• 15% annual growth in profit

increase in profit, excluding the

• 20% return on equity

sale of JMS Systemhydraulik. The Group has a strong financial

• Equity/assets ratio not lower than 35%

60

30

75

40

20

50

20

10

25

0

0

0

position which gives us excellent All financial targets were realised in 2006.

opportunities to make acquisitions.

While reported sales growth was only 6%, streamlining measures implemented in

Over the last three years, OEM has realised the following targets:

“All financial targets were realised in 2006.”

10

OEM ANNUAL REPORT 2006 ❚ FINANCIAL TARGETS

Growth of profit

Return on shareholders’ equity

Equity/assets ratio


Growth strategy Growth is central for the OEM Group. Our growth strategy is based on three parts: Organic growth, Geographic expansion and Acquisitions.

ORGANIC GROWTH

on new markets. Over the past years, OEM

Telfa AB was acquired in 2005 and EIG in the

OEM’s target is a 10% organic growth.

has set up operations in the Baltic countries

Czech Republic in 2006, the first acquisitions since

This will be achieved by:

and the Czech Republic.

the crash of the telecommunications industry.

• Developing our product range

Geographic expansion is also achieved when

Together with a growth target of 15%, our

• Expanding our market shares

a business unit within OEM sets up operations on

financially strong position means that acquisitions

markets where OEM already has other business

will play an increasingly prominent role in

Developing customer/supplier relationships,

activities. OEM Electronics is presently establishing

OEM’s future expansion strategy. More details

product offers and service will improve compe-

itself in Poland and Internordic in Denmark.

about acquisitions are provided on page 30.

“Together with a growth target of 15%, our financially strong position means that acquisitions will play an increasingly prominent role in OEM’s future expansion strategy.” titiveness and boost market shares. Organic

Our efforts to reinforce and broaden customer

growth is evidence of satisfied customers and

offers on OEM’s new markets and evaluate new

that what we offer is attractive to new customers.

markets in Central and Eastern Europe will

The launch of new suppliers is also an essential

continue in 2007.

aspect of organic growth. Organic growth over time is necessary to create long-term, stable business units.

ACQUISITIONS The Group has a history in which acquisitions have played an important role in our growth

GEOGRAPHIC EXPANSION

strategy. The downturn in the telecommunica-

New opportunities for expansion are created by

tions industry forced OEM into an intense

launching a well-functioning brand concept

restructuring phase at the start of 2000.

GROWTH STRATEGY ❚ OEM ANNUAL REPORT 2006

11


Employees To be able to live up to its vision of becoming a leading player in the industrial trading sector OEM needs skilled, competent employees.

It takes competent, dedicated employees to

employment conditions and good opportunities

company. It is evidence that we have managed

become a leading player in the industrial

for personal growth.

to motivate our employees to advance in the

trading sector. Our employees are OEM’s single greatest asset. We are convinced that when our employees

organisation and take on greater responsibilities. COMPETENCE DEVELOPMENT Investing in competence development for our

TRAINEE PROGRAMMES

grow, so does the company. Consequently, we

employees is a natural aspect of our ongoing

OEM International started a trainee programme

feel it is important to create opportunities for

quality efforts. Competence development

in 2006. The purpose is to safeguard the long-

our employees to develop and realise their

efforts are primarily conducted at company

term supply of employees in key positions and

ambitions. By so doing, we reinforce our

level where various types of in-house training

increase the presence of Swedish employees in

competitiveness with cutting-edge competence.

programmes are arranged.

our foreign companies. OEM International

It is our employees that produce results and

Needs and preferences are mapped out in the

will recruit several individuals each year who

build long-term value for our customers,

personal performance dialogues held annually

will receive a solid foundation for a successful

suppliers and shareholders. To attract and retain

between employees and immediate supervisors.

career within the OEM Group through the

qualified employees, OEM must offer attractive

An individual competence development plan

two-year trainee programme.

for each employee is prepared in conjunction with this discussion.

CORPORATE CULTURE OEM currently has 23 operating units comprised

RECRUITS AND CAREERS

of cultures that are influenced by their employees.

A propensity to change, curiosity and a goal-

All units do however conform to the Group

oriented approach are characteristics that

bywords, namely dedications, openness, goal

ensure our employees an interesting future

orientation, positive attitudes and modesty.

and careers. Our ambition is to internally recruit 75% of our new managers and specialists. We consider it a major achievement when we can wish an employee luck in a new position within the It takes a business concept to achieve our vision — it takes people to realise it.

12

OEM ANNUAL REPORT 2006 ❚ EMPLOYEES

It is natural for us to share our experiences and knowledge in order to create a learning and positive climate. We want our employees to feel a sense of job satisfaction, community and security. They are


200

“OEM is developed

150

150 100

by people who want

531

Share of women

105

Share of men

100 50

to develop.”

Average no. of employees

50

0

0

Age distribution (no. of employees)

426

Sick leave personnel/yr

(days)

8

Training costs per employee

(SEK)

4 719

Fitness costs per employee

(SEK)

1 004

Period of employment (no. of employees)

Key indicators employees

to be very involved in the company and proud

needs of our employees at an individual level.

in various fitness activities and work with the

to work at OEM.

The will to learn and the ability to serve as a

contracted preventive healthcare service.

lodestar and encourage all employees. Managers

OEM is to advocate a healthy lifestyle for its

and managers. This allows candour and

and employees are mutually responsible for

employees and compel managers and employees

improves the quality of personal performance

contributing to a successful corporate climate.

to work toward the same objectives.

dialogues. It also lays the foundation for mutual

Reciprocal demands are to lead to constructive

trust so that constructive criticism and praise

activities that make us even better partners for

EQUAL OPPORTUNITIES

become a part of the day-to-day communication.

our customers.

OEM currently has an unequal distribution of

We believe in openness between employees

men and women. This is a traditionally male LEADERSHIP

WORK ENVIRONMENT AND HEALTH

For OEM, leadership is about being a role

A good, suitable working environment is a

model and sharing knowledge

prerequisite for employee satisfaction

and insight. Defining

and good performance.

distinct goals and sub-

OEM encourages its

goals and drawing

employees to participate

dominated industry. Most of the women in the Group work in finance, administration and marketing. We are working to recruit more women to technical positions and hope to attract more female applicants in the future.

up individual goals and plans together with the employees in order to achieve these goals. The ability to coach and cultivate the unique

EMPLOYEES ❚ OEM ANNUAL REPORT 2006

13


Quality, the environment & ethics OEM’s all-embracing quality policy means that products and services must meet or exceed customer expectations.

Our objective is that customers will associate

All companies sell components and systems

OEM with good products, high delivery

from worldwide manufacturers.

assurance, good technical support and a businesslike, positive reception. Supplier improvement

This means that the greatest impact on

efforts aimed at, among other things, boosting

the environment stems from

delivery accuracy from suppliers is a constantly

• goods and personnel transports

ongoing process. It requires constant dialogue

• the presence of environmentally-

on subjects ranging from product quality and

damaging substances in products

product development to delivery time and environmental issues. This work is vital to ensure

• printing and distribution of product catalogues

we maintain our own quality targets and live

• packaging materials

up to our quality policy.

• office heating, lighting and cooling.

Customer attitude surveys are performed annually to monitor quality from a customer

TRANSPORTS AND COMPANY CARS

perspective. Subsidiaries that are not third-

OEM pressures forwarding agents to aim for

party certified work with environmental and

alternative fuel and environmentally-classified

quality issues based on customer and market

cars. As per our own company car policy, the

requirements.

OEM Group will only supply cars classified in

PRINTING AND DISTRIBUTION OF

line with Environmental Class 2005 (MK2005)

PRODUCT CATALOGUES

(cf. formerly Environmental Class 1).

The Group prints and distributes about 50.000

THE ENVIRONMENT

product catalogues and brochures each year.

The OEM Group’s environmental policy

14

OEM pressures forwarding agents to aim for alternative fuel and environmentally-classified cars.

dictates continuous efforts to minimise our

OUR SUPPLIER REQUIREMENTS

When purchasing printing services, we only

external environmental impact. Environmental

Our customers often raise issues about products

consider environmentally-certified printers.

efforts will be governed by legal requirements as

containing substances that have an impact on the

To the greatest possible extent, OEM strives

well as what is financially feasible, technically

environment. We review the environmental efforts

to print on environmentally-friendly paper.

possible and ecologically justified. The aim is

of our suppliers when we visit. Our certified

Work is underway to publish product information

to reduce the impact of our business on the

companies have a special supplier review form

on the internet, which will reduce the number

environment in both the short and long term.

devised by our product managers.

of printed catalogues.

OEM ANNUAL REPORT 2006 ❚ QUALITY, THE ENVIRONMENT AND ETHICS


NEW ENVIRONMENTAL REQUIREMENTS

ISO14001 CERTIFIED COMPANIES

ISO9001 CERTIFIED COMPANIES

GENERATE BUSINESS OPPORTUNTIES

The following companies have ISO 14001

The following companies have ISO 9001

On 1 July 2006, the RoHS Directive was

environmental certification:

quality certification:

introduced that bans the use of lead, mercury,

• OEM Automatic AB

• OEM Automatic AB

cadmium and other hazardous substances in

• OEM Electronics AB

• OEM Electronics AB

electrical and electronic equipment.

• Internordic Bearings AB

• Internordic Bearings AB

Additional companies plan to apply for

• AB Indoma

The directive has primarily affected customers in the electronics industry. An overwhelming

certification.

“Our objective is that customers will associate OEM with good products, high delivery assurance, good technical support and a business-like, positive reception.” majority of the electronics manufacturers adapted their production in 2006 in compliance with the new directives. This resulted in temporarily higher sales of primarily wave soldering systems and reflow ovens.

ETHICS OEM’s business activities are based on longterm personnel, supplier and customer relationships. The values of the management and our employees contribute to cultivating these relationships. Consequently, it is vital that ethical issues are regularly discussed. One such example of ethical issues relates to the certification of factories that OEM collaborates with in China. Among other things, this entails investigating the occurrence of child labour. Our day-to-day business is characterised by respect for employees and business partners.

QUALITY, THE ENVIRONMENT AND ETHICS ❚ OEM ANNUAL REPORT 2006

15


Board of Directors The Board of Directors of OEM International (publ) is comprised of six regular members and three deputy members elected by the Annual General Meeting.

Five Board meetings were held in 2006, all of

The Board receives no bonuses. The amounts

Hans FranzĂŠn as well as Board members Orvar

which were recorded in the minutes. The work of

and other benefits are reported in the Income

Pantzar and Agne Svenberg. The Committee

the Board complies with the rules of procedure

Statement, Note 6, on page 61.

nominates members to the Board and issues

adopted by the Board. Once a year, the principal

Auditors are nominated and elected by the

guidelines for remuneration to the Managing

auditor attends and reports on the auditing

Annual General Meeting for a four-year tenure.

Director. The Board approves remuneration

process.

The auditors’ work is invoiced within negotiated

negotiated by the Chairman of the Board and

price frames.

the Managing Director. The Committee

Decisions and the division of responsibility between the Board and the Managing Director

convened once in 2006.

are regulated in the written instructions for the

NOMINATION AND REMUNERATION

Managing Director. Proposals regarding

COMMITTEE

Management is determined by the Managing

remuneration to the Board are presented to

The Nomination and Remuneration Committee

Director in consultation with the Chairman

the Annual General Meeting for decision.

is comprised of Chairman of the Board

of the Board.

í˘ą Hans

í˘ł Orvar

DEPUTY MEMBERS

FranzÊn Born 1940. Chairman of the Board since 1992. Board member since 1974. CEO until 31 Dec. 2001. Engineer Other appointments: Chairman of the Board, Tranüs Resebyrü AB, Cendio AB, Ibizkit AB, Handelsbanken’s local board in Tranüs, Montico AB and IB Medical AB. Board member, Crouzet AB, Bomarknadsbolaget AB and Linktech AB. Number of shares: 235.792 OEM Class A and 215.430 OEM Class B

Pantzar Born 1939. Board member since 1997. Founder of Cyncrona AB. Engineer. Not employed by OEM. Other appointments: Board member, Next Generation System AB Number of shares: 542.440 OEM Class A and 934.120 OEM Class B Barkman Born 1957. Board member since 1997. Business Administrator. Not employed by OEM. Number of shares: 14.000 OEM Class B

í˘ľ Gunnar

Eliasson Born 1951. Board member since 2000. Business Administrator. Not employed by OEM. Number of shares: 4.000 OEM Class B

í˘ś Lars-Ă…ke

Rydh Born 1953. Board member since 2004. M.Sc. Engineering. Not employed by OEM. President and CEO of Nefab AB Other appointments: Board member, Nefab AB, Handelsbanken Region Eastern Sweden and Nolato AB. Number of shares: 1.000 OEM Class B

AUDITOR: KPMG Bohlins AB Principal auditor: Niklas Bengtsson Authorised Public Accountant

16

OEM ANNUAL REPORT 2006 â?š BOARD OF DIRECTORS

Tomas FranzĂŠn Born 1962. Deputy member since 1997. President and CEO of Eniro AB. M.Sc. Engineering. Not employed by OEM Other appointments: Board member, Eniro AB, BTS AB and Securitas Systems AB. Number of shares: 5.000 OEM Class B

í˘´ Ulf

í˘˛ Agne

Svenberg Born 1941. Board member since 1974. Managing Director up until 29 February 2000. Engineer Other appointments: Chairman of the Board, EG:s El o Automation AB, Personality Gym AB and ISP AB. Board member, Elektro-Mekan i Årjäng AB. Number of shares: 221.800 OEM Class A and 79.510 OEM Class B

Remuneration to other members of Senior

Inger Svenberg Born 1937 Board member 1974-1997. Deputy member since 1997. Not employed by OEM. Number of shares: 186.000 OEM Class A and 89.652 OEM Class B Jerker LĂśfgren Born 1950. Deputy member since 2003. Head Counsel Carnegie Private Banking. Not employed by OEM. No OEM shares.














BOARD OF DIRECTORS ❚ OEM ANNUAL REPORT 2006

17


Senior Management OEM International’s ambition is to develop the operating units through growth and profitability that surpasses our competitors. In addition to succinct management-by-objectives, this means also implementing a culture and strategy that produces long-term, stable business units.

Jörgen Zahlin has been the Managing Director

business units. Senior Management works

the needs of the business units. The board

of OEM International since 2000 and is

to develop the Group in line with the vision,

of an operating unit consists normally of the

responsible for the company’s day-to-day

business concept and strategy defined by the

business director, controller and the

management, which includes all issues not

Board.

Managing Director.

decision-making rights in terms of investments,

MANAGEMENT OF OPERATING UNITS

GROUP-WIDE RESOURCES

corporate acquisitions/ divestments and

The company groups OEM Automatic, OEM

There are resources within the Group that

financing issues are regulated by the regulations

Electronic and Cyncrona have separate boards

work with specific Group-wide functions.

defined by the Board.

over which the Group’s Managing Director

The resources cover financial control, business

presides as chairman.

systems, tele/data communication, market

reserved for the Board. The Managing Director’s

The Group’s senior management consists of the Managing Director, Finance Director and

The election of other board members,

four Directors in charge of the Group’s largest

both internal and external, is governed by

warehouse management.

 Jörgen

 Jan

Cnattingius Born 1955. Finance Director Group employee since 1985. Economist Number of shares: 3.000 OEM Class B

 Urban

 Mikael

 Fredrik

Zahlin Born 1964. Managing Director of OEM International AB as of 1 March 2000. CEO since 1 Jan 2002. Group employee since 1985. Engineer Number of shares: 62.500 OEM Class B

Thörnkvist Born 1968. Business Director OEM Automatic AB Group employee since 1990. Engineer Number of shares: 1.000 OEM Class B

 Stefan

Wik Born 1959. Managing Director of OEM Automatic AB Group employee since 1998. M.Sc. Engineering. Other appointments: Board member, Landy Vent International AB and JS Computers AB. Number of shares: 2.900 OEM Class B (partially via company)

18

OEM ANNUAL REPORT 2006 ❚ SENIOR MANAGEMENT

communication, quality & environment and

Malm Born 1962. Business Director OEM Electronics. Group employee since 1983. Engineer Number of shares: 300 OEM Class B Tengstrand Born 1966. Business Director Development. Group employee since 1991. Engineer Number of shares: 400 OEM Class B














SENIOR MANAGEMENT ❚ OEM ANNUAL REPORT 2006

19


Group structure The Group is organised into four company groups. Three groups are organised according to their distinct brand concepts and one company group, Development, is a collection of other business units.

Company groups

20

Company groups/concept

Products

OEM Automatic

Automation components

9

OEM Electronics

Electronic components

3

Cyncrona

Equipment & material for the electronics industry

7

Development

Other business activities

4

OEM ANNUAL REPORT 2006 â?š GROUP STRUCTURE

No. of countries


OEM Automatic

OEM Electronics

Components for industrial automation.

Appliance and circuit board components and EMC/microwave components.

Read more on pages 22-23

Read more on pages 24-25

Cyncrona

Development

Production systems and components for electronics production

Bearings and bearing solutions, motors and transmissions, seals and pumps

Read more on pages 26-27

Read more on pages 28-29

GROUP STRUCTURE â?š OEM ANNUAL REPORT 2006

21


OEM Automatic 2006 was another record-breaking year. Both sales and profit rose considerably due to a sound demand and climbing market shares. The OEM Automatic concept has grown stronger and coordination in the Group enables us to expand on all markets.

❚ Sales climbed 15% from SEK 605 million to SEK 698 million. ❚ Profits escalated 22% from SEK 74.7 million to SEK 91.0 million.

22

OEM ANNUAL REPORT 2006 ❚ OEM AUTOMATIC


Geographic markets OEM Automatic has operations in Sweden, Norway, Denmark, Finland, Estonia, Poland, the Czech Republic, Slovakia and the UK. 100

800

300

75 200 50

400

100 25

0

0

Sales (SEK m)

0

Profit (SEK m)

No. of employees

Share of Group sales

In April, OEM Automatic set up operations in

several current suppliers while simultaneously

• Represent key suppliers on all markets

the Czech Republic and Slovakia through the

increasing product offers through new supplier

• Geographic expansion in northern Europe

acquisition of EIG spol. s.r.o. The company’s

partnerships. Coordinated market initiatives

sales in 2005 amounted to about SEK 25 million.

generate effective, quick launches of new

MARKETS AND CUSTOMERS

EIG’s product range is comprised mainly

products on all markets.

Demand has escalated on all markets. On the

of components from OEM Automatic’s

whole, the market for automation components

current suppliers. The range was expanded

GOALS AND STRATEGIES

in Europe is relatively stable and expected to

with products from three suppliers during

A growth rate that exceeds 10% per year is the

grow about 2-3% per year over a business cycle.

the autumn and the company will continue to

company’s goal. The growth strategy is built

Markets such as Poland, the Czech Republic

expand its customer offers throughout 2007.

around organic growth comprised of greater

and Slovakia have a growth rate over 5%. As most

Substantial investments will simultaneously

market shares and broader supplier partnerships

of our customers have small to medium-sized

be made in marketing and sales.

while concurrently evaluating new markets.

volume production, there is no drastic transfer of

Effective April 2007, deliveries to Norwegian

production to low-cost countries. We expect that

and Danish customers will be effected from the

The strategy is:

Swedish warehouse, which has broadened its

• Strong local market presence with

customer offers and boosted delivery capacity to

face-to-face sales

demand will remain strong throughout 2007.

COMPETITORS

the Norwegian and Danish markets. Coordination

• Streamlining through coordination

Competitors include manufacturers such

in terms of expanding the product range, market

• Enhance our customer offer by expanding

as Schneider Electric, ABB and Omron,

communication and logistics will continue to

our product range

be crucial success factors for OEM Automatic.

as well as trading companies such as Indutrade and Addtech.

Throughout the year, OEM has continued

Products Components for industrial automation within the business areas of Electrical Machinery, Electrical Cabinets, Safety, Cables, Motors, Pressure & Flow and Pneumatics.

Stefan Wik Managing Director OEM Automatic AB Mikael Thörnkvist Business Director OEM Automatic

Business activities OEM Automatic is comprised of eight companies with sales on nine markets within industrial automation components. Customers include machine and appliance manufacturing industries, wholesalers and strategic end users. OEM Automatic represents some 70 suppliers that are specialists and leaders within their respective fields. Marketing is primarily conducted through face-to-face sales where OEM Automatic supplies the customer with product and application knowledge.

to expand its geographic partnerships with


OEM Electronics Sales for 2006 were on par with last year’s sales figures. The decline in certain product groups was set off by an increase in business dealings with EMS customers*. Implemented market investments did not reach full effect, resulting in lower profit.

❚ Sales rose 1% from SEK 305 million to SEK 307 million. ❚ Profit fell from SEK 24.7 million to SEK 18.8 million.

* EMS customers = Electronic Manufacturing Services 24

OEM ANNUAL REPORT 2006 ❚ OEM ELECTRONICS


Geographic markets OEM Electronics has operations in Sweden, Finland and Poland.

400

30

100

200

15

50

0

0

0

Sales (SEK m)

Profit (SEK m)

The company continued to substantially increase resources, particularly in its Swedish market organisation, while

No. of employees

Share of Group sales

GOALS AND STRATEGIES

a slight growth. We believe that Poland will

Our goals include a growth rate over 10% per

achieve for a greater upturn in the future.

year and to become the strongest player on the electronic components market in northern

COMPETITORS

Europe.

Competitors include both the major, global component distributors Arrow and Avnet,

simultaneously working with streamlining and coordination initiatives throughout 2006. Sales were negatively affected by, in part, a major deal that reached the end of its product

The strategy is:

as well as industrial trading companies such as

• Strong local market presence with

Addtech, Lagerkrantz Group and Elektronik-

• Streamlining through coordination

our product range after a supplier altered its

• An organisation distinguished by

market strategy. New customers and more

service-mindedness, excellent

sales to our present customers led to sales on

applications knowledge and various

par with last year.

types of logistics solutions.

OEM Electronics opened an office in China during the year, which means better service and

gruppen. Moreover, manufacturers’ own sales

face-to-face sales

lifecycle, and in part our decision to amend

companies rank among our competitors.

• Enhance our customer offer by expanding our product range

quicker responses from the suppliers. New suppliers were launched in Poland and

MARKETS AND CUSTOMERS Demand from the electronics industry in

our customer offer.

the Nordic countries is stable and indicates

Business activities OEM Electronics is comprised of three companies active in the sale of electronic and electromechanical components. Our customers include appliance and electronics manufacturers as well as strategic electronic manufacturing services (EMS customers) in northern Europe. OEM Electronics represents some 60 suppliers that are each specialists in their respective fields. Marketing is primarily conducted through face-toface sales where OEM Electronics provides the customer with product and application knowledge alongside logistics solutions.

Products Appliance components, circuit board components and EMC/microwave components.

Urban Malm Business Director OEM Electronics

we have added resources, thereby reinforcing


Cyncrona The Cyncrona companies reported both lower sales and profit but positive growth in Norway and the Baltic countries.

❚ Sales dropped 14% from SEK 284 million to SEK 244 million. ❚ Profit fell from SEK 18.5 million to SEK 14.2 million.

26

OEM ANNUAL REPORT 2006 ❚ CYNCRONA


Geographic markets Cyncrona has operations in Sweden, Finland, Denmark, Norway, Estonia, Latvia and Lithuania.

300

80

20

15 200 40

10 100 5

0

0

0

Sales (SEK m)

Profit (SEK m)

No. of employees

Share of Group sales

As of April, invoices issued to Cyncrona’s largest

restructuring includes a new Nordic/Baltic

MARKETS AND CUSTOMERS

customer are mainly commission based which

organisation for materials with central ware-

In general, demand has risen on the Nordic

largely explains the drop in

housing. A common IT platform has laid the

and Baltic markets during the year. We believe

sales figures.

foundation for extended cross-

The Norwegian

country cooperation.

company

that the Nordic markets will remain stable throughout 2007, but that demand will escalate in the Baltic countries. New technology and

exceeded its

GOALS AND STRATEGIES

new machine launches pave the way for new

targets, while

Our goals are to consolidate

business deals.

the Swedish

our position as the leading

and Danish companies failed

distributor of electronics production equipment, support

COMPETITORS Cyncrona competes primarily with such

to achieve satisfactory

and materials in the Nordic and Baltic

manufacturers as Siemens and Mydata for

results. Growth in Norway

countries and reach a 7% profit margin.

surface-mounting equipment and with a handful

and the Baltic countries is still very good.

of local distributors, including Scanditron,

Fuji launched a new machine at the beginning

The strategy is:

HIN and Sincotron for other parts of the

of the year that opens up a brand-new customer

• A strong customer offer coupled with an

product range.

segment for Cyncrona. Restructuring measures were implemented during the spring aimed at improving the group’s customer and supplier focus as well

efficient market organisation will generate business in 50% of the projects in progress. • Continued streamlining efforts to guarantee competitiveness • Complementary acquisitions

Business activities Cyncrona is comprised of five companies active in the sale of electronics production equipment and material. Cyncrona represents some 20 leading suppliers, each specialists in their fields. Support is a significant aspect of our business activities and includes training, installation, start-up and service. Marketing is primarily conducted through face-toface sales where Cyncrona supplies the customer with product and application knowledge.

Products Electronics production equipment, support and material as well as test equipment for circuit boards, microelectronics and PCBs.

Mattias Franzén Business Director Cyncrona

its decision-making capacity. Part of this


Development The company group Development significantly improved both its profit and sales figures spurred by a good demand, implemented streamlining measures and acquisitions.

❚ Sales climbed 31% from SEK 162 million to SEK 213 million. ❚ Profits escalated 55% from SEK 8.4 million to SEK 13.0 million.

28

OEM ANNUAL REPORT 2006 ❚ DEVELOPMENT


Geographic markets Internordic has operations in Sweden, Finland and Denmark. The other companies operate in Sweden.

12 200 8

100

4

0

0

Sales (SEK m)

Profit (SEK m)

No. of employees

Share of Group sales

INTERNORDIC BEARINGS AB

OEM MOTOR AB

Sales in Sweden rose from SEK 80 million to

Sales dropped from SEK 32 million to SEK 30

SEK 88 million. However, stiffer price squeezing

million. Business deals with low margins were

coupled with implemented investments in the

phased out while new business with good

organisation aimed at future expansion had

margins were introduced which resulted in

a negative impact on the profit margin.

improved profitability in 2006.

The Finnish company reported strong growth for the year while the Danish venture

INDOMA AB

failed to achieve the expected results.

Sales climbed from SEK 36 million to SEK 39 million. Growth within the OEM customer

TELFA AB Sales amounted to SEK 47 million.

IBEC

segment has risen while sales of standard

The company, acquired in 2005, reported sales

Sales climbed from SEK 28 million to SEK 33

products to end customers have declined.

of SEK 14 million for the period September to

million. Our company in China has reinforced

Greater focus on more profitable deals among

December 2005.

its staff with additional employees who will

OEM customers has considerably enhanced

work primarily with quality assurance.

profitability.

Substantial changes were made in the product range and the organisation was streamlined

The objective with IBEC is to improve

in 2006. Streamlining measures were counter-

product quality and create an efficient logistics

balanced against expansion investments resulting

for Group companies trading in products

in stable profitability for the company.

manufactured in China.

Business activities Company group Development is comprised of business units that are in various stages of growth that either aim to evolve into a strong brand concept or be modified to merge with another business unit. The group constantly evaluates opportunities for acquisitions within affiliated product areas, but also within brand new product areas.

Products Bearings and bearing solutions, motors and transmissions, seals and pumps. Incorporated units Internordic Bearings AB, IBEC BV, OEM Motor AB, Indoma AB and Telfa AB.

â–˛

Fredrik Tengstrand Business Director Development


Acquisitions and expansion Acquisitions are a crucial part of OEM’s expansion strategy. OEM has long-standing experience of developing and creating stable, profitable trading companies. Our target is to acquire a minimum sales volume of SEK 100 million per year.

OEM has both the financial and personnel

position on at least two geographic markets.

Both internal and external resources are exploited

resources to make acquisitions but will always

The concepts are developed through individual

in our search for potential acquisitions. Overall

be meticulous in the evaluation phase to

set-ups or business acquisitions within the frame-

market assessments are performed through

ensure that the acquisition has the potential

work of each respective business concept.

sector analyses within defined segments.

to mature successfully.

The fourth company group, Development, encompasses the other business units. This group

Principal evaluation criteria in the selection

ACQUISITIONS CAN BE MADE

works to develop these units into established

process include:

AT THREE DIFFERENT LEVELS

concepts. The company groups are the gateway

• The company’s market position and potential

• Supplementary acquisitions. A company or

for acquisitions within new segments.

• The suppliers’ product range and product

product range is incorporated into an existing business unit. • Complementary acquisitions. A company that fits in and is run as an individual company

A prosperous format can be designed for each respective company by thoroughly cementing

• Relationships with principal suppliers

the business concept, customer offers, product

• The customer base’s structure and orientation

range, structure and organisation.

• Employee competence and experience • The competitive situation on the relevant

within Development. • Strategic acquisitions. A brand-new product area

SELECTION PROCESS

market and other markets in northern Europe

with considerable sales that becomes a new

It is essential that there is an industrial concept

concept, or a company on a new geographic

behind every acquisition. To achieve good, long-

OEM AS OWNER

market.

term returns for our shareholders, the acquired

OEM’s vision is the platform for development

Regardless of the level, it is crucial that the acquired

units must have better development within OEM

for each respective operating unit. Every company

company can develop positively within the OEM

than independently.

is allowed its own individual company culture and values, but all must comply with the demand

Group and that our integration strategy allows for both economies of scale and aggressive initiatives.

Factors that contribute to development are: • Utilisation of synergy effects within the Group.

FROM DEVELOPMENT UNIT TO ESTABLISHED CONCEPT

30

development strategy

• OEM’s expansion-conducive experiences, resources and infrastructure

to strive to fulfil the essence of OEM’s vision. In short, the vision means that the companies are to provide the best service and competence in the industry, increase our suppliers’ market

OEM presently has three established concepts,

• Professional marketing and customer approach

shares and rank among the most profitable

all of which have a distinct business concept, a

• Geographically broader supplier partnerships

companies within their respective segments.

thorough long-term strategy and a confirmed

• Governance, control and management

By working in the best interest of our customers,

OEM ANNUAL REPORT 2006 ❚ ACQUISITIONS AND EXPANSION


suppliers and owners, we produce competitive

but OEM felt the most suitable. We perceived

companies that generate opportunities for our

OEM as the company most interested in

employees to develop and realise their ambitions.

developing the company in its present state

platform in the Czech Republic and Slovakia

and best equipped to use the company’s and

which we will continue to cultivate as an OEM

THE FUTURE

employees’ potential. Telfa has an exciting

Automatic company. Our strategy is that we will

OEM underwent substantial changes between

future ahead and it will be interesting to follow

gradually launch new products and approach

2001 and 2003, due partly to the crash of the

its progress,” says Sture Olsson.

the market considerably more aggressively than

telecom industry. A new platform has been

“It was natural for us to look for one of the

This gives OEM a very favourable starting position. “The acquisition of EIG has given us a strong

previously. We have great expectations for the

created over the past years and OEM is ready to

industry’s stronger companies when OEM

Czech market and count on being one of the

grow through acquisitions. Our ambition is to

decided to embark on a new segment. Telfa had

leading players within three years,” says Mikael

acquire SEK 100-150 million in sales per year.

strong brands and is a reputable name within

Thörnkvist, head of the OEM Automatic group.

Several of the companies within Development

Swedish industry. This was a deciding factor for

have potential to expand geographically, either

us in our efforts to build a Nordic platform in

evolve into a leading automation component

through setting up their own organisations or

the pump segment. We have taken the first step

supplier in the Czech Republic and Slovakia.

through acquisitions. At the same time, there

on our journey and foresee many interesting

From our perspective, OEM is the ideal buyer

are many fresh segments that the companies

opportunities ahead,” says Fredrik Tengstrand,

to guide the company into its next phase,” says

can target for operations.

Chairman of the Board of Telfa.

Emil Gawlik.

TWO CURRENT

“Both internal and external resources are exploited

ACQUISITION EXAMPLES Telfa

in our search for potential acquisitions.”

AB Telfa was acquired from the brothers Sture and Stefan Olsson in September 2005. Telfa

EIG

markets pumps for food, pharmaceutical, marine

EIG in the Czech Republic was acquired from

and automotive applications. The company’s

Emil Gawlik and Jan Samorad in March 2006.

reported sales for 2005 amounted to SEK 42

EIG is a distributor for several suppliers that

million. Pumps were a new product area for

OEM Automatic has collaborated with for a

OEM but the concept was clear.

long time. The company’s reported sales

Find a niche supplier on the Swedish market

for 2005 amounted to SEK

with a strong platform and established brand that

25 million and its markets

can serve as a basis for continued investments in

are the Czech Republic and

the pump segment. Telfa was the most suitable

Slovakia.

company for acquisition. The company has made

EIG has had business activities

positive progress in 2006, and implemented

in the Czech Republic since

streamlining measures have been reinvested

1991 and during this time has

in expanding the sales organisation and

become known for delivering

marketing activities.

quality products and

“We are very satisfied to have OEM as our new owner. There were several different buyers,

“With OEM as owner, EIG will more quickly

providing good service.


Central warehouse in Tranås provides better customer service OEM Automatic decided to centralise the Nordic warehouse services to Tranås, Sweden in 2004. The Danish warehouse relocated in November 2005 and the Norwegian warehouse in April 2006.

“The coordination benefits are evident in many

MODERN TECHNOLOGY

FUTURE TRENDS

ways,” say Logistics Manager Erik Skoglund.

Today’s warehouse houses about 1.000 pallet

“The business is dynamic and marked by constant

By concentrating support processes, range

squares and 2.500 shelf metres. Four modern

changes and improvements. Flows and processes

development, market communication and

warehouse machines provide rational handling.

are central to our efforts to streamline business

logistics, we can simultaneously become more

Everything is managed by seven employees in

activities. Product ranges develop constantly

efficient and can deliver quicker, improve deli-

incoming, 15 in outgoing and one transport

and our target is a 10% volume increase per

very precision, offer a greater selection and save.

coordinator.

year.

“Costs per customer order row have dropped 33% against our Danish customers and 47% against our Norwegian customers. The selection for these markets has skyrocketed from about 5.000 articles to today’s 23.000 articles. Customers can expect to receive the products the next

“The flows and processes are central to our efforts to streamline business activities. Product ranges develop constantly and our target is a 10% volume increase per year.”

day when they place orders before 3 p.m.” “We handle 120.000 customer orders, which RESULTS AND EFFECTS

corresponds to about 300.000 picking rows every

handling are also regularly updated. Next in

Other measurable advantages of the new ware-

year,” explains Erik Skoglund. 90.000 shipments

line are new investments in new warehouse

house include less capital tied up, less scrapping,

leave Tranås every year.

machines and equipping our packaging and

lower transfer costs, more effective handling,

32

“The technical solutions for more effective

“We also process deliveries according to certain

improved customer service on smaller markets

customer-specific requirements. Customers often

due to greater flexibility and a higher stock

want deliveries to be ready for immediate use

turnover rate.

in production, and we arrange it.”

OEM ANNUAL REPORT 2006 ❚ CENTRAL WAREHOUSE IN TRANÅS

unloading processes with a conveyor solution.”


Close cooperation – the key to success OEM Automatic plays the role of local sales- and marketing organisation for the producer. A high level of competence is required to achieve good results – as well as close cooperation with the supplier.

One example of a tight

Key resources at OEM Automatic and Puls

Among the marketing material that was

relation is the spring 2006

teamed up to produce purposeful marketing

developed were a sales brochure in seven

launch of a brand new series

material for the local markets. A joint sales

languages, articles for customer newsletters,

of power supplies from the

training plan was also developed.

competition analyses and product sample

german company Puls GmbH. “Puls is an innovative pioneer

sets for the entire sales force. FREQUENT CONTACTS

Before starting the launch campaign, sales

in this market,” says Mikael Thörnkvist, Group

Magnus Davidsson and Anthony Wrighton,

people from all countries met up for a 2-day

Manager at OEM. “They have received awards

OEM Product Managers for Sweden and UK,

kick-off at Puls in Munich.

for “Technical leadership” and “Entrepreneur”

talks of a tight and effective collaboration with

from reknown Frost & Sullivan”.

Puls in Germany:

“It was cool to have everyone involved gathered at the same venue,” says Magnus Davidsson.

“In this project OEM have showed a good eye for new sales opportunities and worked offensively with our new product line. Being an innovative company ourselves, these are qualities we particularly appreciate.” “To launch the new Dimension series, we decided

“During the sales and marketing planning

to use a coordinated effort within the OEM

process, we had scheduled meetings and

each other and it created a really positive

Group. The aim was to achieve a powerful and

continuous contacts. Puls people showed a

atmosphere around the project.”

efficient roll-out process.”

positive commitment and served us with technical details, imagery and sales arguments.”

34

“We got the chance to trade experiences with

OEM ANNUAL REPORT 2006 ❚ CLOSE COOPERATION – THE KEY TO SUCCESS


COORDINATED LAUNCH

where we work through agents. In this project

This kind of coordinated product launches

they have showed a good eye for new sales

create tremendous synergies for the

opportunities and worked offensively with

manufacturer.

our new product line. Being an innovative

“We took a drastic decision launching the product under a new name, cutting all bearings

company ourselves, these are qualities we particularly appreciate,” Bernhard continues.

to it’s predecessors. But we believed so much

“We have been working with OEM since

in the product setting a new standard,” tells

1999 and they are very professional in all that

Bernhard Erdl, founder and owner of Puls.

they do. They stay in touch and give us good

“But it put extreme demands on the launch

OEM working for us, we hardly miss having

achieve the neccesary impact on all markets

our own company in that market,” Bernhard

through a simple and efficient process,”

Erdl concludes.

“OEM has a great track-record with us, with sales figures way above average for the markets

Facts Puls GmbH.

feedback from their markets. Where we have

process. Thanks to the coordination we could

he continues.

Bernhard Erdl, owner and founder of Puls.

Puls GmbH was founded 1980 and is a market leader and pioneer in DIN-rail mounted power supplies. The annual turnover is about 60 million Euro and they have today 560 employees.


For easy access to definitions while reading the annual report, open the flap and lay flat.

36

OEM ANNUAL REPORT 2006


Financial reporting

Five-year Group summary ........................................................38 Key indicators for the last five years ..........................................39 Directors’ report ................................................................40-41

Financial reports — the Group Income statement ....................................................................42 Balance sheets....................................................................43-44 Changes in shareholders’ equity ..............................................45 Cash flow statement ................................................................46

Financial reports — Parent company Income statement ....................................................................47 Balance sheets....................................................................48-49 Changes in shareholders’ equity ..............................................50 Cash flow statement ................................................................51

Notes with accounting principles and financial statements ................................................52-73

Proposed allocation of profits....................................................74 Auditors’ report ........................................................................75

FINANCIAL REPORTING ❚ OEM ANNUAL REPORT 2006

37


F I V E - Y E A R G R O U P S U M M A RY

SEK m

F R O M T H E I N C O M E S TAT E M E N T Sweden Overseas

2006

848.6

2005

801.4

2004

2003

900.5

2002

950.3

1 076.1

586.3

557.4

497.6

467.1

443.2

1 434.9

1 358.8

1 398.1

1 417.4

1 519.3

Operating income before depreciation and impairment

140.2

121.7

108.8

92.3

91.2

Depreciation and impairment

-13.5

-12.6

-21.7

-37.0

-51.7

-0.2

2.2

1.1

-2.9

-5.7

1.0

1.3

1.1

1.0

0.5

127.5

112.6

89.3

53.4

34.3

Tax

-36.7

-31.0

-25.7

-21.9

-19.6

Group profit for the year from remaining business units

90.8

81.6

63.6

31.5

14.7

90.8

7.2

-

-

-

181.6

88.8

63.6

31.5

14.7

Total amount invoiced

Income from financial items Participation in associated companies Profit before tax

Profit from divested business unit

Group profit for the year

FROM THE BALANCE SHEET Intangible fixed assets Tangible fixed assets Financial assets and deferred tax claims Inventories

20.5

18.2

10.3

15.6

32.6

139.6

122.5

136.1

125.5

138.5

11.3

14.2

20.5

17.9

19.2

214.6

218.2

205.9

230.9

282.9 229.1

Current receivables

279.2

241.0

228.6

198.9

Liquid funds

288.5

150.0

111.0

52.7

44.4

953.7

764.1

712.4

641.5

746.7

Shareholders’ equity

640.7

477.9

424.9

391.1

414.7

Long-term liabilities

35.9

30.5

41.1

24.8

27.8

277.1

255.7

246.4

225.6

304.2

953.7

764.1

712.4

641.5

746.7

Total assets

Current liabilities Total shareholders’ equity and liabilities

In the above five-year summary and the key indicators for the past five years, the period between 2006 and 2004 is reported in line with IFRS while the period between 2003 and 2002 is reported in line with Swedish GAAP. Adjustments have been made for the years 2003-2002 for goodwill and component depreciation to ensure consistency with IFRS. The five-year summary and key indicators for 2005 are adjusted for divested business units in line with IFRS 5.

38

OEM ANNUAL REPORT 2006 ❚ FIVE-YEAR GROUP SUMMARY


K E Y I N D I C AT O R S F O R T H E L A S T F I V E Y E A R S

OEM GROUP

Net sales of which overseas Group’s profit before tax

2006

2005

2004

2003

2002

SEK m

1 448

1 366

1 406

1 428

1 534

%

41.2

41.1

35.6

32.9

29.5

SEK m

127.5

112.6

89.3

53.4

34.4

SEK m

181.6

88.8

63.6

31.5

14.7

from remaining business units Group profit for the year

Earning capacity of total capital

%

15.2

15.8

13.8

8.1

5.1

Earning capacity of capital employed

%

21.2

23.1

20.6

11.9

7.1

Earning capacity of shareholders’ equity

%

32.5

19.7

15.4

7.8

3.4

Average interest payable Debt/equity ratio

Operating income/sales

%

5.8

3.4

4.4

2.2

3.1

times

0.10

0.12

0.12

0.10

0.25

%

9.7

8.9

7.5

6.5

5.9

Profit percent

%

9.0

8.5

6.7

3.9

2.9

Profit margin

%

8.8

8.4

6.4

3.7

2.2

times/yr

1.52

1.79

1.97

2.23

2.05

SEK m

2.7

2.8

2.5

2.2

2.2

%

67.2

62.5

59.6

61.0

55.5

SEK m

113.4

74.1

92.9

131.0

156.0

%

205

153

138

112

90

Earnings per share before dilution

SEK

23.52

11.49

8.23

3.87

1.77

Earnings per share after dilution

SEK

23.42

11.43

8.18

3.86

1.77

Earnings per share before dilution**

SEK

11.76

10.57

8.23

3.87

1.77

SEK

11.71

10.51

8.18

3.86

1.77

thousands

7 723

7 723

7 739

8 139

8 332

Capital’s turnover rate Sales/employee

Equity/assets ratio

Cash flow from operations Quick ratio

Earnings per share after dilution** Average no. of shares:

Average number of shares after dilution thousands

7 756

7 763

7 779

8 166

8 332

Shareholders’ equity per share*

82.96

61.88

55.02

48.08

49.77

SEK

Earnings per share excl. repurchased shares SEK

23.52

11.73

8.41

4.14

1.88

No. of shares excl. repurchased

7 723

7 569

7 569

7 603

7 817

thousands

Proposed dividends

SEK

8.50

7.00

5.50

4.50

4.50

Quoted price as per 31 December

SEK

189.00

163.50

118.00

102.00

77.00

P/E ratio

times

8.0

14.2

15.9

26.4

43.5

P/E ratio**

times

16.1

15.5

15.9

26.4

43.5

%

4.5

4.3

4.7

4.4

5.8

No.

531

494

571

636

701

SEK m

175

162

184

197

220

Direct return

No. of employees Salaries and remuneration

*Shareholders’ equity per share = visible equity per share. ** Remaining business units

KEY INDICATORS FOR THE LAST FIVE YEARS ❚ OEM ANNUAL REPORT 2006

39


DIRECTORS’ REPORT

The Board and the Managing Director of OEM International AB (Publ) hereby submit the Annual Report and the consolidated financial statements for the 2006 financial year. 37-75. BUSINESS ACTIVITIES OEM International AB is represented via its subsidiaries in the Nordic countries, as well as in the UK, Poland, the Czech Republic, the Netherlands and Estonia. OEM is an industrial trading Group operating in northern Europe. Our product range consists of industrial components and systems from suppliers that are each specialists in their fields. Our product range spans from basic mechanical components such as seals and couplings to complete production systems for circuit boards, for instance. OEM’s broad, extensive selection allows the company to customise its offers to best suit the needs of our customers. We constantly expand our range by adding new products and discontinuing or replacing unprofitable products. Each company markets a clearly defined product range which, coupled with the added value of the organisation, forms a brand concept. The brand concepts are launched on new geographic markets as they grow in strength. In 2006, the Group was organised into five group companies/business segments: OEM Automatic, OEM Electronics, Cyncrona, Development and JMS Systemhydraulik. JMS Systemhydraulik was divested as per 30 November 2006. GROUP SALES AND PROFIT The Group’s net sales amounted to SEK 1,447.9 million (1,366.3) for the remaining business units, marking an increase of 6%. The year’s profit after tax for the remaining business units totalled SEK 90.8 million (81.6), an increase of 11%. This corresponds to SEK 11.76 (10.57) per share. The Company JMS Systemhydraulik was divested in 2006, with the result of the sale contributing an additional SEK 90.8 million in profit after tax. This is reported in a separate row in the consolidated income statement. The figures for 2005 have been rearranged to reach comparable figures. The year’s profit after tax including divested business units totalled SEK 181.6 million (88.8). Earnings per share reached SEK 23.52 (11.49). 2006 was yet another record-breaking year for OEM Automatic. Sales increased by 15% and profit by 22%. Our coordinated logistics means that we now deliver to customers in Norway and Denmark from the Swedish warehouse, resulting in greater efficiency and better customer service. Demand in general is high, which means that the Group has sound growth and profitability on all markets. Sales for the group OEM Electronics was basically on par with last year, SEK 307 million (305). While implemented market investments generated good growth in certain areas, they have yet to reach full effect. At the same time, a major deal came to a close and the group phased-out a supplier after the supplier altered

40

OEM ANNUAL REPORT 2006 ❚ DIRECTORS’ REPORT

its market strategy. The group reports a 24% decline in profit. Cyncrona’s sales dropped 14% causing profits to drop 24%. The decline in sales is attributed primarily to the transfer of parts of the sales to commission transactions. The Finnish and Norwegian companies surpassed their targets while the Swedish and Danish companies failed to achieve satisfactory results. Growth in Norway and the Baltic countries is still very good. Development has made positive progress during the year. A sound demand, implemented streamlining measures and acquisitions resulted in a 31% increase in sales and a 55% increase in profit for the group. JMS Systemhydraulik, which was sold 30 November 2006, developed well during the year. Implemented streamlining measures improved profits by 35% despite no change in sales compared with comparable periods. GROUP CHANGES All shares in JMS Systemhydraulik AB and Fastighets AB Hydraulen were sold for SEK 120 million on 30 November 2006 to Specma Hydraulic AB, part of Investment AB Latour. The reason for the sale is that JMS Systemhydraulik is a relatively small player on a large market. Refer also to Note 5. The Czech company EIG spol. s.ro. was acquired on 12 April 2006. The company trades in automation components and reported sales of SEK 29 million for the whole of 2006. EIG represents several of the most important suppliers that OEM Automatic represents, facilitating considerable synergy effects on new markets. The acquisition makes it possible to expand in both the Czech Republic and Slovakia. For more information, refer to Note 4. Restructuring of the Group is still in progress. The objective is to achieve a simpler, more distinct legal Group structure through fusions and voluntary liquidations. The following dormant companies were eliminated from the Group in 2006: OEM Källving AB, Plastinvent i Karlskoga AB, LIF produkter AB, Opiab-Företagen AB, Testcenter i Stockholm AB and Fotbromsen AB. FINANCIAL POSITION 2006 Liquid funds and unutilised credit commitments in the Group amounted to SEK 495 million (399) at the turn of the year. Cash flow from current operations totalled SEK 113.4 million (74.1). After net investments of SEK 31.9 million (-5.9), as well as amortisation, new loans, paid dividends and repurchase/sale of own shares for a total of SEK -4.8 million (-30.5), the year’s cash flow amounted to SEK 140.5 million (37.7). The Group’s equity/assets ratio at year-end was 67.2% (62.5). INVESTMENTS Investments in the Group during the year amounted to SEK 15.3 million (17.9) in machinery and equipment, SEK 25.8 million (2.2) in buildings, and SEK 11.1 million (9.9) in other intangible fixed assets.

RESEARCH AND DEVELOPMENT The Group does not conduct any research and development of its own. R&D is mainly conducted at our suppliers, using information about market demands that we provide. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT For a description of financial instruments and risk management, refer to Notes 1 and 24. ACCOUNTING PRINCIPLES The figures for the comparative years in the consolidated income statement and cash flow statement have been restated and presented as if the business unit sold during the current year had been sold already at the start of the comparative year (refer also to Note 5 and Note 26). ENVIRONMENTAL IMPACT The Group had no operations that require registration under the Swedish Environmental Code in 2006. The OEM Group’s environmental policy dictates continuous efforts to minimise our external environmental impact. Environmental efforts will be governed by legal requirements as well as what is financially feasible, technically possible and ecologically justified. The aim is to reduce the impact of our business on the environment in both the short and long term. REPURCHASE OF OWN SHARES With the objective of improving the Group’s return on shareholder’s equity and earnings per share, OEM International AB has an authorisation granted to the Board of Directors by the Annual General Meeting, to repurchase its own shares. The company repurchased 455,400 shares at an average price of SEK 163.79 in 2006. In total, company ownership of shares amounted to 609,400 shares before all shares were sold on the market during the month of December at an average price of SEK 185.97. The profit from the sale, SEK 26.6 million, had a positive impact on shareholders’ equity. The Annual General Meeting’s authorisation for the repurchase of shares extends to 10% of the total number of shares, that is, 772,310 shares. THE BOARD OF DIRECTORS AND ITS WORK OEM International’s Board of Directors is comprised of six regular board members and three deputies elected by the Annual General Meeting. The Board members are presented on pages 16-17. Five Board meetings were held in 2006, all of which were recorded in the minutes. The work of the Board complies with the rules of procedure adopted by the Board. Once a year, the principal auditor attends and reports on the auditing process. Decisions and the division of responsibility between the Board and the Managing Director are regulated in the written instructions for the Managing Director.


The Nomination and Remuneration committee is comprised of Chairman of the Board Hans Franzén and Board members Orvar Pantzar and Agne Svenberg. The Committee nominates members to the Board and provides guidelines for remuneration to the Managing Director. The Committee convened once in 2006. PARENT COMPANY OEM International is a holding company. The Parent Company holds all Board Chairman positions in all major business units and provides several support functions. The Group has a senior management that is responsible for the development of the Group. Parent company’s sales amounted to SEK 41.3 million (34.9). Of this, SEK 39.3 million (34.8) relates to sales to subsidiary companies. Profit before appropriations and tax amount to SEK 105.9 million (21.4). Of the year’s profit, SEK 101.5 million stem from the sale of shares in JMS Systemhydraulik AB and Fastighets AB Hydraulen.

PROPOSED DIVIDEND The Board of Directors proposes that the divided be raised from SEK 7 to SEK 8.50. The complete proposal for profit allocation is presented on page 74. PROPOSED SHARE SPLIT AND REDEMPTION PROCESS To facilitate trading of company shares and alter the company’s capital structure, OEM’s Board of Directors proposes a 4:1 share split combined with an automatic redemption procedure. Through this procedure, shareholders will receive three new shares and a redemption share which will be redeemed for SEK 20. EVENTS AFTER THE CLOSE OF THE FINANCIAL YEAR OEM International AB has acquired the remaining 50% of the shares in the associated company Crouzet AB from Crouzet Automatismes SAS. Crouzet AB is active in the automation component sector and has 17 employees.

The company reported sales of SEK 51 million and profit before appropriations and tax of SEK 3.4 million in 2006. SEK 18 million of the invoiced sales were for deliveries to OEM Automatic. The acquisition means an annual increase in sales of SEK 30 million for the OEM Group but is expected to have an insignificant impact on the OEM Group’s profits this year. The purchase price amounts to EUR 625 thousand, which corresponds to 50% of the company’s net assets. FUTURE DEVELOPMENTS The Group’s objective is to increase profit by an average of 15% annually over an economic cycle. With its market position, organisation and financial position the Group is well equipped for continued expansion. The Group’s growth strategy is described on page 11.

The figures for 2005 are in parenthesis.

FINANCIAL REPORTING ❚ OEM ANNUAL REPORT 2006

41


C O N S O L I D AT E D I N C O M E S TAT E M E N T S E K m

Note

2006

2005

Net sales

2

1 447.9

1 366.3

Other operating income

3

2.5

-

Trading goods

-941.5

-898.9

Other expenses

-109.2

-105.8 -239.9

O P E R AT I N G I N C O M E

O P E R AT I N G E X P E N S E S

Personnel expenses

6

-259.5

Depreciation and impairment of tangible and intangible fixed assets

7

-13.5

-12.6

2.4

126.7

109.1

OPERATING INCOME

FINANCIAL INCOME AND EXPENSES Financial income

10

3.5

5.1

Financial expenses

11

-3.7

-2.9

9

1.0

1.3

127.5

112.6

-36.7

-31.0

90.8

81.6

90.8

7.2

181.6

88.8

181.6

88.8

-

-

before dilution, SEK

23.52

11.49

after dilution, SEK

23.42

11.43

before dilution, SEK

11.76

10.57

after dilution, SEK

11.71

10.51

Average no. of shares:

7 723 103

7 723 103

Average number of shares after dilution

7 756 418

7 763 103

8.50 *

7.00

Participation in associated companies PROFIT BEFORE TAX Taxes

12

THE YEAR’S PROFIT FROM REMAINING BUSINESS UNITS Profit from divested business unit, net after tax

PROFIT FOR THE YEAR

5

AT T R I B U TA B L E T O : Parent company shareholders Minority interest

Earnings per share:

Earnings per share from remaining business units

Dividend, SEK *Proposal

42

OEM ANNUAL REPORT 2006 ❚ FINANCIAL REPORTING


C O N S O L I D AT E D B A L A N C E S H E E T S

ASSETS

SEK m

Note

31.12.2006

31.12.2005

9.4

FIXED ASSETS I N TA N G I B L E F I X E D A S S E T S Goodwill

13

3.0

Other intangible fixed assets

14

17.5

8.8

20.5

18.2

TA N G I B L E F I X E D A S S E T S Buildings and land

15

109.8

92.6

Equipment, tools and installations

15

29.8

29.9

139.6

122.5

FINANCIAL

ASSETS

Participation in associated companies

17

Other financial assets Other long-term receivables

D E F E R R E D TA X C L A I M S

12

TOTAL FIXED ASSETS

5.6

5.6

1.3

2.6

0.5

0.4

7.4

8.6

3.9

5.6

171.4

154.9

CURRENT ASSETS I N V E N T O RY, E T C . Products in progress Finished products and trading goods

-

3.3

214.6

214.9

214.6

218.2

C U R R E N T R E C E I VA B L E S Tax claims Accounts receivable Receivables from associated companies Other receivables Prepaid expenses and accrued income

213.0

0.0

0.0

55.0

13.3

13.0

14.7

279.2

241.0

288.5

150.0

TOTAL CURRENT ASSETS

782.3

609.2

TOTAL ASSETS

953.7

764.1

LIQUID FUNDS

18

5.4 205.8

FINANCIAL REPORTING â?š OEM ANNUAL REPORT 2006

43


C O N S O L I D AT E D B A L A N C E S H E E T S

SEK m

SHAREHOLDERS’ EQUITY AND LIABILITIES

Note

31.12.2006

31.12.2005

Share capital

38.6

38.6

Other contributed capital

39.4

39.4

SHAREHOLDERS’ EQUITY

19

Reserves

1.3

5.9

Surplus brought forward

379.8

305.2

The year’s profit

181.6

88.8

640.7

477.9

TOTAL SHAREHOLDERS’ EQUITY ATTRIBUTABLE TO HOLDERS OF SHARES IN PARENT COMPANY

LIABILITIES

LONG-TERM LIABILITIES Interest-bearing liabilities Other long-term liabilities

20

9.3

8.9

Provisions for pensions

21

0.0

0.0

Non interest-bearing liabilities Deferred tax liabilities

12

TOTAL LONG-TERM LIABILITIES

26.6

21.6

35.9

30.5

CURRENT LIABILITIES Interest-bearing liabilities Overdraft

22

53.1

44.2

Other current liabilities

20

2.9

2.8

Non interest-bearing liabilities Advances from customers Accounts payable, trade Liabilities to associated companies Tax liabilities Other liabilities Accrued expenses and prepaid income

23

Guarantee provisions

1.3

0.8

124.6

107.6

0.8

1.0

-

2.3

32.0

32.0

59.7

63.9

2.7

1.1

TOTAL CURRENT LIABILITIES

277.1

255.7

TOTAL SHAREHOLDERS’ EQUITY AND LIABILITIES

953.7

764.1

31.12.2006

31.12.2005

Property mortgages

20.0

27.7

Business mortgages

55.1

69.7

75.1

97.4

Guarantee commitments

2.4

2.9

TOTAL CONTINGENT LIABILITIES

2.4

2.9

PLEDGED ASSETS AND CONTINGENT LIABILITIES

Note

PLEDGED ASSETS FOR OWN LIABILITIES AND PROVISIONS

TOTAL PLEDGED ASSETS

22

CONTINGENT LIABILITIES

44

OEM ANNUAL REPORT 2006 ❚ FINANCIAL REPORTING


GROUP CHANGES IN SHAREHOLDERS’ EQUITY

Share capital

Opening equity 01.01.2005

38.6

SEK m

Other contributed capital

Reserves

39.4

Surplus brought forward

346.8

Sum of equity

424.8

Translation differences

5.9

5.9

Total changes in assets are recognised directly in shareholders’ equity, excluding transactions with owners

5.9

5.9

Profit for the year Total changes in assets, excluding transactions with owners

88.8

88.8

88.8

94.7

-41.6

-41.6

5.9

394.0

477.9

5.9

394.0

477.9

5.9

Paid dividends

Closing balance 31.12.2005*

Opening equity 01.01.2006

38.6

39.4

38.6

39.4

Translation differences Total changes in assets are recognised directly in shareholders’ equity, excluding transactions with owners

-4.6

-4.6

-4.6

-4.6

Profit for the year Total changes in assets, excluding transactions with owners

-4.6

Paid dividends Repurchase/sale of own shares**

Closing balance 31.12.2006*

38.6

39.4

1.3

181.6

181.6

181.6

177.0

-53.0

-53.0

38.8

38.8

561.4

640.7

* Shareholders’ equity attributable to Parent Company shareholders. ** Total of SEK 26.6 million from net repurchase/sale of shares is included in surplus brought forward.

FINANCIAL REPORTING ❚ OEM ANNUAL REPORT 2006

45


C O N S O L I D AT E D C A S H F L O W S TAT E M E N T

SEK m

2006

2005

C U R R E N T O P E R AT I O N S Profit after financial items Adjustments for items not included in the cash flow

127.5

112.6

12.6

27.1

140.1

139.7

Paid taxes

-42.1

-38.5

CASH FLOW FROM CURRENT OPERATIONS BEFORE CHANGES IN WORKING CAPITAL

98.0

101.2

Changes in inventory

-20.0

2.2

Changes in accounts receivable

-16.1

5.7

Change in other operating receivables

-2.6

-4.5

Change in accounts payable

30.2

-1.5

Change in other operating liabilities

23.9

-29.0

113.4

74.1

Cash flow from changes in working capital

CASH FLOW FROM CURRENT OPERATIONS

INVESTMENT ACTIVITIES Divestment of business, net liquidity impact

74.4

0.9

Acquisition of subsidiaries, net liquidity impact

-19.5

-9.9

Acquisition of tangible fixed assets

-40.0

-12.7

14.2

15.8

2.8

0.0

31.9

-5.9

Sale of tangible fixed assets Sale of financial assets CASH FLOW FROM INVESTMENT ACTIVITIES

FINANCING ACTIVITIES Loans raised Dividends paid

11.1 -41.6

Repurchase/sale of own shares

38.8

-

CASH FLOW FROM FINANCING ACTIVITIES

-4.8

-30.5

140.5

37.7

CASH FLOW FOR THE YEAR Liquid funds at start of the year

149.2

110.3

Exchange rate difference liquid funds

-1.2

1.2

Liquid funds at end of the year

288.5

149.2

Additional information, refer to Note 26

46

9.4 -53.0

OEM ANNUAL REPORT 2006 â?š FINANCIAL REPORTING


PA R E N T C O M PA N Y ’ S I N C O M E S TAT E M E N T S E K m

Notes

2006

2005

O P E R AT I N G I N C O M E Net sales

41.3

34.9

3

1.8

-

-19.3

-18.4

Personnel expenses

6

-23.3

-25.1

Depreciation of tangible and intangible fixed assets

7

Other operating income

O P E R AT I N G E X P E N S E S Other external expenses

OPERATING INCOME

-1.8

-1.7

-1.3

-10.3

28.5

INCOME FROM FINANCIAL ITEMS Income from participation in Group companies

8

104.2

Income from participation in associated companies

9

1.0

1.1

Other interest income and similar profit items

10

2.3

2.1

Interest expenses and similar loss items

11

-0.3

0.0

105.9

21.4

INCOME AFTER FINANCIAL ITEMS

Y E A R - E N D A P P R O P R I AT I O N S Difference between tax depreciation and depreciation according to plan: Buildings and land Equipment, tools and installations Tax allocation fund, reversal Tax allocation fund, provision PROFIT BEFORE TAX Taxes

PROFIT FOR THE YEAR

12

-

0.2

0.2

-0.3

-

0.2

-14.7

-

91.4

21.5

3.7

2.0

95.1

23.5

FINANCIAL REPORTING ❚ OEM ANNUAL REPORT 2006

47


PA R E N T C O M PA N Y ’ S B A L A N C E S H E E T S S E K m

ASSETS

Note

31.12.2006

31.12.2005

Buildings and land

15

18.4

18.8

Equipment, tools and installations

15

2.6

3.4

21.0

22.2

176.6

FIXED ASSETS TA N G I B L E F I X E D A S S E T S

FINANCIAL ASSETS Participation in Group companies

16

187.9

Participation in associated companies

17

1.2

1.2

-

1.0

189.1

178.8

210.1

201.0

Shares in tenant-owners’ rights

TOTAL FIXED ASSETS

CURRENT ASSETS

C U R R E N T R E C E I VA B L E S Tax claims

0.3

-

Accounts receivable

0.2

0.0

196.6

211.4

45.6

0.0

Loans to Group companies Other receivables Prepaid expenses and accrued income

2.8

2.8

245.5

214.2

220.8

107.6

TOTAL CURRENT ASSETS

466.3

321.8

TOTAL ASSETS

676.4

522.8

CASH AND BANK BALANCES

48

OEM ANNUAL REPORT 2006 ❚ FINANCIAL REPORTING

18


PA R E N T C O M PA N Y ’ S B A L A N C E S H E E T S S E K m

S H A R E H O L D E R S ’ E Q U I T Y, P R O V I S I O N S AND LIABILITIES

Note

31.12.2006

31.12.2005

Share capital

38.6

38.6

Restricted reserves

32.3

32.3

70.9

70.9

263.4

212.3

95.1

23.5

358.5

235.8

429.4

306.7

SHAREHOLDERS’ EQUITY RESTRICTED EQUITY

19

NON-RESTRICTED EQUITY Non-restricted reserves Profit for the year

TOTAL SHAREHOLDERS’ EQUITY

U N TA X E D R E S E R V E S Accumulated excess depreciation: Buildings and land

15

-

0,0

Machinery and equipment 13 569 243

15

0.4

0.6

Tax allocation fund, provision for taxation 2004

9.4

9.4

Tax allocation fund, provision for taxation 2005

13.0

13.0

Tax allocation fund, provision for taxation 2007

14.7

-

TOTAL UNTAXED RESERVES

37.5

23.0

1.7

1.7

1.7

1.7

PROVISIONS Deferred tax liability

12

TOTAL PROVISIONS

CURRENT LIABILITIES Non interest-bearing liabilities Accounts payable, trade Liabilities to Group companies Tax liabilities Other liabilities

2.1

1.9

192.0

164.2

-

11.5

6.1

4.5

7.6

9.3

TOTAL CURRENT LIABILITIES

207.8

191.4

TOTAL SHAREHOLDERS’ EQUITY, PROVISIONS & LIABILITIES

676.4

522.8

31.12.2006

31.12.2005

Property mortgages

7.5

7.5

TOTAL PLEDGED ASSETS

7.5

7.5

Accrued expenses and prepaid income

PLEDGED ASSETS & CONTINGENT LIABILITIES

23

Note

PLEDGED ASSETS FOR OWN LIABILITIES AND PROVISIONS

22

CONTINGENT LIABILITIES Security undertakings to the benefit of Group companies

219.7

139.4

TOTAL CONTINGENT LIABILITIES

219.7

139.4

FINANCIAL REPORTING ❚ OEM ANNUAL REPORT 2006

49


PA R E N T C O M PA N Y C H A N G E S I N S H A R E H O L D E R S ’ E Q U I T Y Restricted equity

Opening equity 01.01.05

SEK m Non-restricted equity

Share capital

Reserves

38.6

32.3

Repurchase of shares

-12.2

Group contributions received

204.3

263.0

94.5

94.5

-26.5

-26.5

-8.6

-8.6

2.4

2.4

Total changes in assets are recognised directly in shareholders’ equity, excluding transactions with owners

61.8

61.8

Profit for the year

23.5

23.5

Total changes in assets, excluding transactions with owners

85.3

85.3

-41.6

-41.6

Tax effect on Group contributions received Group contributions paid Tax effect on Group contributions paid

Paid dividends

Closing equity 31.12.2005

38.6

32.3

-12.2

248.0

306.7

Opening equity 01.01.2006

38.6

32.3

-12.2

248.0

306.7

Group contributions received

61.7

61.7

-17.3

-17.3

-3.6

-3.6

1.0

1.0

Total changes in assets are recognised directly in shareholders’ equity, excluding transactions with owners

41.8

41.8

Profit for the year

95.1

95.1

136.9

136.9

-53.0

-53.0

Tax effect on Group contributions received Group contributions paid Tax effect on Group contributions paid

Total changes in assets, excluding transactions with owners

Paid dividends Repurchase/sale of own shares

Closing equity 31.12.2006 Proposed dividends, SEK 8.50 per share

50

Sum of equity

Profit brought forward

OEM ANNUAL REPORT 2006 ❚ FINANCIAL REPORTING

38.8

38.6

32.3

26.6

38.8

331.9 65.6

429.4


PA R E N T C O M PA N Y ’ S C A S H F L O W S TAT E M E N T S E K m

2006

2005

C U R R E N T O P E R AT I O N S Profit after financial items Adjustments for items not included in the cash flow

105.9

21.4

-101.2

5.4

4.7

26.8

Paid taxes

-24.5

-13.8

CASH FLOW FROM CURRENT OPERATIONS BEFORE CHANGES IN WORKING CAPITAL

-19.8

13.0

Cash flow from changes in working capital Changes in accounts receivable Change in other operating receivables Change in accounts payable Change in other operating liabilities CASH FLOW FROM CURRENT OPERATIONS

-0.2

0.0

-30.8

-11.2

0.2

0.9

27.7

-5.1

-22.9

-2.4

INVESTMENT ACTIVITIES Sale of subsidiary

120.0

-

Acquisition of subsidiary

-29.9

-10.0

Acquisition of tangible fixed assets

-0.8

-2.0

Sale of tangible fixed assets

0.1

0.0

Sale of financial assets

2.8

-

92.2

-12.0

CASH FLOW FROM INVESTMENT ACTIVITIES

FINANCING ACTIVITIES Group contribution Dividends paid

58.1

85.9

-53.0

-41.6

Repurchase/sale of own shares

38.8

-

CASH FLOW FROM FINANCING ACTIVITIES

43.9

44.3

CASH FLOW FOR THE YEAR

113.2

29.9

Liquid funds at start of the year

107.6

77.7

Liquid funds at end of the year

220.8

107.6

Additional information, refer to Note 26

FINANCIAL REPORTING ❚ OEM ANNUAL REPORT 2006

51


N O T E S W I T H A C C O U N T I N G P R I N C I P L E S A N D C O M M E N T S T O T H E F I N A N C I A L S TAT E M E N T S A M O U N T S I N S E K M I L L I O N U N L E S S O T H E R W I S E I N D I C AT E D

NOTE 1. ACCOUNTING PRINCIPLES COMPLIANCE WITH STANDARDS AND LEGISLATION The consolidated financial statements have been prepared in accordance with the International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB) and interpretations published by the International Financial Reporting Interpretations Committee (IFRIC), as approved by the European Commission and applicable in all Member States. Furthermore, the Group has applied the Swedish Financial Accounting Standards Council’s recommendation RR 30 (Supplementary Accounting Regulations for Groups). The Parent Company applies the same accounting principles as the Group, except in those cases specified below in the section “Accounting Principles of the Parent Company”. The differences between the accounting principles of the Parent Company and the Group result from restrictions on how IFRS can be implemented in the Parent Company on account of the Swedish Annual Accounts Act and the Act on Safeguarding of Pension Obligations (Tryggandelagen) and, in some cases, for fiscal reasons. REQUIREMENTS FOR PREPARING PARENT COMPANY AND GROUP FINANCIAL REPORTS The Parent Company’s functional currency is the Swedish krona (SEK), which is also the official reporting currency for the Parent Company and the Group. This means that the financial reports are presented in Swedish krona. All amounts are rounded off to the nearest million unless otherwise stated. Assets and liabilities are reported at the historical acquisition value, except for certain financial assets and derivate instruments that are valued at their fair value. Financial instruments, which are valued at their fair value, consist of financial assets classified as financial assets valued at fair value via the income statement or as financial assets that can be sold. Fixed assets and divestment groups that are held for sale are reported at the lowest of the previously reported value and the fair value after deductions for sales costs. To prepare the financial statements in accordance with the IFRS, the management must make assessments, estimates and assumptions that affect the application of the accounting principles and the reported amounts pertaining to assets, liabilities, income and expenses. These estimates and assumptions are based on historical experience and a number of other factors that are deemed reasonable and prudent at the time they are made. The results of these estimates and assumptions are then used to assess the reported value of assets and liabilities that cannot clearly be determined from other sources. Consequently, actual outcomes may differ from these estimates and assessments. The estimates and assumptions are regularly reviewed. Changes in estimates are reported in the period in which the change is made, if the change affects that period only, or in the period in which the change is made and future periods if the change affects both the current and future periods. Assessments made by the management in

52

OEM ANNUAL REPORT 2006 ❚ FINANCIAL REPORTING

the application of IFRS that have a significant impact on the financial statements, and estimates and which may give rise to significant adjustments in future financial statements are described in detail in Note 29. The consolidated accounting principles outlined below have been applied consistently throughout the periods reported in the Group’s financial reports unless otherwise stipulated below. Consolidated accounting principles have also been applied consistently to the accounting and consolidation of the Parent Company, subsidiaries and associated companies. None of the accounting principles have been altered in 2006 as compared with the annual report for 2005. CHANGES IN ACCOUNTING PRINCIPLES 2007 Certain new or amended standards and new interpretations take effect as of financial year 2007, and have not been adopted in advance when preparing these financial statements. In its reports for 2007, the Group will be affected to a limited extent by the application of IFRS 7, Financial instruments: Information and related amendments in IAS 1, Presentation of Financial Statements. The new regulations demand more information about capital as well as about financial instruments and financial risks. CLASSIFICATION, ETC. Fixed assets and long-term liabilities essentially consist only of amounts that can be expected to be recovered or paid more than twelve months after the balance sheet date. Current assets and current liabilities essentially consist only of amounts expected to be recovered or paid within twelve months from the balance sheet date. SEGMENT REPORTING A segment is a part of the Group which is identifiable for accounting purposes that either produces products or services (business segments), or goods or services in a given economic environment (geographic segment) that are exposed to risks and opportunities that differ from other segments. Segment information is presented only for the Group in accordance with IAS 14. CONSOLIDATION PRINCIPLES FOR SUBSIDIARY COMPANIES Subsidiaries are those businesses over which OEM International AB has a controlling influence. Control influence means the controlling entity has the direct or indirect right to structure the company’s financial and operating strategies to obtain economic advantages. When determining whether a controlling influence exists, potential voting equity that can be used or converted without delay should be taken into account. Subsidiaries are reported in line with the acquisition method. The acquisition method means that the acquisition of a subsidiary is regarded as a transaction through which the Group indirectly acquires the subsidiary’s assets and assumes its liabilities and contingent liabilities. The method determines the acquisition value

of the shares or business, the fair value of acquired identifiable assets on the acquisition date, and assumed liabilities and contingent liabilities. The acquisition value of the subsidiary’s shares and business respectively is determined by the fair values on the transfer date for assets, incurred or assumed liabilities and equity instruments issued in exchange for the acquired net assets and transaction-related costs that are directly attributable to the acquisition. If the acquisition value exceeds the net value of the acquired company’s assets, assumed liabilities and contingent liabilities, the difference is reported as goodwill. A negative difference is recognised directly in the income statement. The financial statements of the subsidiaries are included in the consolidated financial statements from the effective date of acquisition until the day that controlling influence ceases. CONSOLIDATION PRINCIPLES FOR ASSOCIATED COMPANIES Associated companies are companies in which the Group exercises substantial, but not controlling influence over the operational and financial management, generally through a holding of between 20% and 50% of the voting rights. From the date on which the Group acquires substantial influence, holdings in associated companies are reported in the consolidated financial statements according to the equity method. The equity method means that the value of the shares in the associated companies reported in the consolidated accounts corresponds to the Group’s share in the associated companies’ equity, the consolidated goodwill and other residual values that might exist in the consolidated fair value adjustments. In the consolidated income statement, the Group’s share in the associated companies’ net earnings after tax and minority interest adjusted for depreciation, write-downs or resolution of acquired fair value adjustments respectively is reported under “Participations in associated companies”. Dividends obtained from the associated company reduce the booked value of the investment. On acquisition, any differences between the acquisition value of the holding and the owning company’s share of the net fair value of the associated company’s identifiable assets, liabilities and contingent liabilities are reported in accordance with IFRS 3 “Business Combinations”. When the Group’s share of reported losses in the associated company exceeds the reported value of the shares in the Group, the value of the shares is reduced to zero. Deductions for losses are also made against unsecured, long-term financial transactions which, in their financial sense, constitute part of the owning company’s net investment in the associated company. Further losses are not reported, unless the Group has undertaken to cover losses arising in the associated company. The equity method is adopted until the substantial influence is no longer exercised.


TRANSACTIONS TO BE ELIMINATED ON CONSOLIDATION All intra-Group receivables and liabilities, income or expenses, and unrealised gains or losses arising from intra-Group transactions between Group companies are eliminated in their entirety when preparing the consolidated financial statements. Unrealised gains arising from transactions with associated companies are eliminated to an extent that corresponds to the Group’s share of ownership of the company. Unrealised losses are eliminated in the same way as unrealised gains, but only if there is no indication of impairment. FOREIGN CURRENCY Transactions in foreign currencies Functional currency is the currency that applies in the primary economic environments in which the Group companies operate. Transactions in foreign currencies are translated to the functional currency at the exchange rate prevailing on the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated to the functional currency at the exchange rate prevailing on balance sheet date. Exchange rate differences resulting from translations are reported in the income statement. Exchange rate differences regarding operating assets and liabilities are reported in the operating income, while changes in value attributable to financial assets and liabilities are reported in net financial items. Non-monetary assets and liabilities reported at their historical acquisition values are translated at the exchange rate prevailing on the date of the transaction. Non-monetary assets and liabilities carried at fair value are translated to the functional currency at the rate prevailing at the date when the fair value was determined. Exchange rate fluctuations are then reported in the same way as other changes in value with regard to assets or liabilities. Foreign entities’ financial reports Assets and liabilities in foreign entities, including goodwill and other corporate fair value adjustments, are translated to Swedish kronor (SEK) at the exchange rate prevailing on the balance sheet date. Revenue and expenses in foreign entities are translated to Swedish kronor (SEK) at an average rate that represents an approximation of the rates that applied when each transaction took place. Differences that arise when translating currency in foreign entities are recognised immediately in shareholders’ equity as a translation reserve. The translation reserve includes the translation difference accumulated as of 1 January 2004. When a foreign entity is divested, the accumulated translation differences related to the entity are realised in the consolidated income statement. INCOME Sale of goods Income includes only the gross inflow of economic benefits that the company receives or can receive for its own benefit. Revenue from the sale of goods is booked as income when the company has transferred to the purchaser to the essential risks and benefits associated with ownership of the goods. If there is considerable uncertainty in terms of payment, attached

costs or risk for returns and if the seller retains involvement with the ongoing administration which is usually associated with ownership revenue is not taken up as income. Income is booked at the fair value of what has been received or will be received with deductions for discounts. Amounts collected for the benefit of another are not included in the company’s income but instead constitute received commission. Sales of services and similar assignments Income from the sale of services is booked in the income statement when the service is supplied based on the degree of completion on balance sheet date. The degree of completion is determined on the basis of costs that have been incurred in relation to the total calculated costs for the assignment. Income from the sale of services and similar assignments is reported as revenue when the following conditions are met: • The income attributable to the assignment can be calculated in a reliable way. • It is likely that payment corresponding to the completed assignment will flow to the company. • The costs that have occurred and the costs that remain to complete the assignment can be calculated in a reliable manner. If it is considered probable that the combined costs for an assignment will exceed the total costs, the incurred loss must be immediately reported in full as a cost. OPERATING EXPENSES AND FINANCIAL INCOME AND EXPENSES Operational leasing agreements Payments for operational leasing agreements are reported in the income statement on a straight-line basis over the period of the leasing agreement. Benefits obtained on signing an agreement are reported as part of the overall leasing cost in the income statement. Financial leasing agreement The minimum leasing fees are allocated to interest expenses and amortisation of the outstanding liability. The interest expenses are distributed over the period of the lease, so that each accounting period is charged with an amount corresponding to a fixed rate of interest for the liability reported in the respective period. Variable payments are entered as expenses in the periods they occur. Financial income and expenses Financial income and expenses include interest revenue from bank assets, receivables and interest-bearing securities, interest expenses related to loans, dividend incomes, exchange rate differences attributable to financial investments and financing activities, unrealised and realised gains and losses on financial investments, and derivative instruments used in financial operations. Interest revenue from receivables and interest expenses related to liabilities are calculated using the effective interest method. The effective interest is the rate that ensures that the current value of all estimated future receipts and payments during the expected interest duration is the same as the reported value of the receivable or the liability. The interest element of financial leasing payments is reported in the income statement by using the effective interest method.

Interest revenue and interest expenses respectively include a periodic amount of transaction expenses and discounts, where applicable, premiums and other differences between the original reported value of the receivable and liability respectively and the amount received on maturity and the estimated future receipts and payments during the term of the agreement. Dividend income is reported when the right to retain payment has been established. The Group and the Parent Company do not capitalise interest in the acquisition value of assets. TAXES Income tax consists of current tax and deferred tax. Income tax is reported in the income statement except where the underlying transactions is recognised in equity, in which case any tax effect is recognised in equity. Current tax is the tax to be paid or received for the current year with the application of the tax rates that have been established or which in practice have been adopted as of the balance sheet date. This includes adjustments of current tax attributable to prior periods. Deferred tax is calculated according to the balance sheet method on the basis of temporary differences between the carrying amounts and tax values of assets and liabilities. Temporary differences are not taken into consideration for differences relating to the initial recognition of goodwill, nor relating to the initial recognition of assets and liabilities other that are not a business acquisition which, at the time of the transaction, do not affect either accounting or taxable income. Nor are temporary differences attributable to shares in subsidiaries and associated companies that are not expected to be reversed in the foreseeable future taken into consideration. Measurement of deferred tax is based on how the carrying amount of assets or liabilities is expected to be recovered or settled. Deferred tax is calculated with application of the tax rate and regulations in effect or in practice adopted as of the balance sheet date. Deferred tax claims relating to deductible temporary differences and loss carry-forwards are only reported to the extent that it is likely that they can be utilised. The value of the deferred tax claims is reduced when it is no longer deemed likely that they can be utilised. FINANCIAL INSTRUMENTS Financial instruments reported in the balance sheet include as assets cash and cash equivalents, loan receivables, accounts receivable and financial investments. Accounts payable and loan liabilities are reported as liabilities. A financial asset or financial liability is included in the balance sheet when the company is party to the instrument’s conditions of agreement. Liabilities are included when the counterparty has performed and there is a contractual liability to pay, even if the invoice has not been received. A financial asset (or part thereof) is removed from the balance sheet when the contractual rights are realised, expire or the company transfers, in all essentials, the risks and benefits associated with ownership. A financial liability (or part thereof) is removed from the balance sheet when the contractual liability is fulfilled or otherwise discharged. Borrowing and investments are reported

FINANCIAL REPORTING ❚ OEM ANNUAL REPORT 2006

53


when the transaction is carried out (settlement date accounting), while derivative instruments are reported when the agreement has been entered into (trade date accounting). A financial asset and a financial liability are offset and reported in the balance sheet as a net amount only when there is a legal right to set off the amount and an intention to adjust the items with a net amount or, at the same time, realise the asset and settle the liability. Financial instruments are reported initially at an acquisition value corresponding to the fair value of the instrument plus transaction expenses for all financial instruments, except those instruments categorised as financial assets reported at their fair value in the income statement, which are reported at their fair value excluding transaction expenses. The financial instruments are classified in the first accounts according to the purpose of the acquisition of the financial instrument. The fair value of listed financial assets corresponds to the asset’s listed bid price on the balance sheet date. The fair price of unlisted financial assets is established by applying valuation techniques such as recently completed transactions, prices of similar instruments and discounted cash flow. Accounts receivable and other current and long-term receivables Receivables, that are not derivatives, with payments that can be scheduled, and that are not listed on an active market, are reported at the accrued acquisition value according to the effective interest method. Accounts receivable and other current receivables that normally have a remaining duration of less than twelve months are reported at nominal value. A receivable is individually assessed with regard to its estimated loss risk and is entered at the amount it is expected to generate. Impairments are made where necessary and are reported in the income statement. Financial investments Financial investments and derivatives are categorised as financial assets valued at fair value in the income statement. This category has two subgroups: financial assets held for trading and other financial assets that the Company initially chose to include in this category. A financial asset is classified as being held for trading if it was acquired for the purpose of being sold in the short term. To the second subgroup, the company has chosen to attribute financial assets which, according to the management’s risk management and investment strategy, are administered and evaluated based on the fair value. These assets include financial investments in equity instruments and interest-bearing securities. Financial investments are valued continuously at fair value, with changes in value being reported in the income statement in net financial items. Derivative instruments Derivative instruments include forward exchange contracts and currency options to cover risks associated with changes in exchange rates. Derivatives are also contractual terms that are embedded in other agreements. Embedded derivatives are recognised separately if they are not closely related to the host contract. Value changes in derivative instruments, standalone

54

OEM ANNUAL REPORT 2006 ❚ FINANCIAL REPORTING

and embedded, are reported in the income statement. The Group does not use derivatives for hedging purposes. Value changes in derivative instruments are reported as income and expenses in the operating income or in net financial items, based on the intended use of the derivative instrument and how this use is related to an operating item or a financial item. Liquid funds Liquid funds are cash and immediately available credit in banks and similar institutions, plus current liquid investments with a term of less than three months, from the date of acquisition, which are only exposed to insignificant risk for fluctuations in value. The cash and bank balance is reported at accrued acquisition value. The definition of liquid funds in the cash flow statement corresponds with liquid funds in the balance sheet. Interest-bearing liabilities Loans are reported continuously at accrued acquisition value, which means that the value is adjusted through discounts, where applicable, or premiums when the loan is taken and costs when borrowing is spread over the expected term of the loan. The scheduling is calculated on the basis of the initial interest rate of the loan. Gain and loss arising when the loan is settled are reported in the income statement. Accounts payable and other operating liabilities Liabilities are reported at the accrued acquisition value which is determined from the effective interest that was calculated at the time of acquisition which normally implies nominal value. TANGIBLE FIXED ASSETS Owned assets Tangible fixed assets are reported as assets in the balance sheet if it is likely that future economic benefits shall accrue to the Company and the acquisition value of the asset can be calculated in a reliable way. Tangible fixed assets are reported at acquisition value after deductions for accumulated depreciation and impairment costs. The acquisition price includes the purchase price including expenses directly attributable to putting the asset into place and condition to be used as intended by the acquisition. Directly attributable costs, which are included in the acquisition value, are the cost of delivery and handling, installation, title deeds, consultancy services and legal services. Loan expenses are not included in the acquisition value for fixed assets produced by the Company. The accounting principles for impairment are described below. The carrying amount of a tangible fixed asset is removed from the balance sheet on the disposal or retirement of the asset, or when no future economic benefits are expected from its use or disposal/retirement. The gain or loss arising on the disposal or retirement of an asset is determined as the difference between the sales proceeds and the carrying amount of the asset, less direct sales costs. The gain or loss is recognised in other operating income/cost. Leased assets Leasing is classified in the consolidated financial statements either as capital or operating lease. In a capital lease, the financial risks and benefits

associated with the ownership are essentially transferred to the lessee, otherwise it is an operating lease. Assets leased under a capital lease have been reported as assets in the Group balance sheet. The obligation to pay future lease fees has been reported as long-term and current liabilities. The leased assets are depreciated according to plan, and the leasing payments are reported as interest and depreciation of liabilities. With an operating lease, the lease fee is entered as an expense during the leasing period starting from the date of utilisation, which may differ from what has actually been paid as a lease fee during the year. Subsequent expenditure Subsequent expenditure is added to the acquisition value only if it is likely that the future economic benefits associated with the asset will flow to the enterprise and the acquisition value can be calculated in a reliable manner. All other subsequent expenditure is reported as an expense in the period it is incurred. When determining whether subsequent expenditure should be added to the acquisition value, it is crucial to know if the expense is intended for the replacement of identified components, or parts thereof, in which case such expenses are set up as assets. Even in those cases when a new component has been constructed, the expense is added to the acquisition value. Any undepreciated values reported for replaced components, or parts of components, are discarded and charged to expenses when the component is replaced. Repairs are charged to expenses as incurred. Depreciation principles Straight-line depreciation is applied over the estimated utilisation period of the assets. Land is not depreciated. The Group applies component depreciation, meaning that the estimated useful life of components forms the basis for depreciation. Estimates of useful life: • buildings, business property see below • land improvements 20 years • machinery & other technical facilities 5-10 years • equipment, tools & installations 3-10 years Business property consists of a number of components with different useful lives. The main group is buildings and land. Land is not depreciated as its useful life is considered to be indefinite. The buildings consist of a number of components with different useful lives. These components have estimated useful lives of between 20 and 100 years. The following main groups of components have been identified and form the basis for depreciation of buildings: • Frame 100 years • Frame extensions, interior walls, etc. 30 years • Installations, heating, electricity, water & sanitation facilities, ventilation, etc. 20-32 years • External surfaces, walls, roof, etc. 20-50 years The depreciation methods and residual value of the assets and useful life are reviewed at the close of every year.


INTANGIBLE FIXED ASSETS Goodwill Goodwill represents the difference between the acquisition value of a business acquisition and the fair value of the acquired assets, assumed liabilities and contingent liabilities. In respect of goodwill in acquisitions that were made before January 1, 2004, the Group has not adopted IFRS retroactively on transition to IFRS. Instead, the reported value in the future will be the acquisition value for the Group, after impairment testing (see Note 11). Goodwill is valued at the acquisition value less any accumulated impairment costs. Goodwill is valued at the acquisition value less any accumulated impairment costs. Goodwill is distributed to the cash-generating units. Goodwill arising from the acquisition of associated companies is included in the reported value of participations in associated companies. If the acquisition value is less than the net value of the acquired company’s assets and assumed liabilities and contingent liabilities, the difference is recognised immediately in the income statement. Other intangible fixed assets Other intangible assets acquired by the Group are reported at the acquisition value minus the accumulated depreciation (see below) and impairment (see accounting principles). The expenses of internally generated goodwill and internally generated trademarks are reported in the income statement as the costs are incurred. Subsequent expenditure Subsequent expenditure on intangible assets is reported as an asset in the balance sheet only when it increases the future economic benefits of the specific asset to which it relates. All other expenditure is recognised as an expense when incurred. Amortisation Amortisation is reported in the income statement on a straight-line basis over the estimated utilisation period of the assets, unless such utilisation periods are undetermined. Intangible fixed assets with an undetermined utilisation period are assessed annually for impairment or as soon as indications arise that suggest the asset in question has dropped in value. The useful life of the assets are reviewed annually at least, refer also to Notes 13 and 14. INVENTORIES Inventories are valued at the lowest of the acquisition value and net realisable value. The net realisable value is the estimated sales price in the current operations after deductions for estimated costs for completion and for realising a sale. The first-in, first-out method (FIFO) is applied in estimating inventories. The acquisition value of in-house manufactured semi-finished and finished products consists of the direct manufacturing costs and a reasonable share of the indirect manufacturing costs. Normal capacity utilisation considered for valuation purposes. IMPAIRMENT The reported values of the Group’s assets are tested on each balance sheet day for any indication of impairment. Below is a description of the impairment test performed for tangible and intangible fixed assets, shares in subsidiaries

and associated companies, as well as financial assets. Assets for sale and divestment groups, inventory and deferred tax claims are exempt. The reported value of the exempt assets is assessed in accordance with the respective accounting standards. Impairment tests for tangible and intangible assets as well as shares in subsidiaries and associated companies If there is any indication of impairment, then the asset’s recoverable value is calculated, according to IAS 36 (see below). The recoverable value for goodwill and other intangible assets with undetermined utilisation period is calculated annually. If essentially independent cash flow cannot be isolated for individual assets, then the assets are grouped at the lowest levels where essentially independent cash flows can be identified — a so-called cash-generating unit. An impairment loss is recognised when the carrying amount of an asset or cash-generating unit, or pool of units, exceeds its recoverable value. Impairment losses are charged against the income statement. Impairment losses attributable to a cash-generating unit, or pool of units, are mainly allocated to goodwill. They are thereafter divided proportionately among other assets in the unit (pool of units). The recoverable value is the highest of the fair value minus sales expenses and utilisation value. Utilisation value is measured by discounting future cash flows using a discounting factor that takes into account the risk-free rate of interest and the risk associated with the specific asset. Impairment test for financial assets All financial assets except those categorised as financial assets valued at fair value via the income statement are tested for impairment. For each report, the company assesses if there is objective proof that indicates impairment of a financial asset or group of financial assets. A financial asset has impairment only if objective proof indicates that one or more events have occurred that have an effect on the financial asset’s future cash flows, if these can be reliably calculated. The recoverable value for the assets categorised as loan receivables and accounts receivable reported at accrued acquisition value are calculated as current value of the future cash flow discounted by the effective interest that applied when the asset was reported the first time. Assets with a short term are not discounted. Impairment losses are charged against the income statement. Reversal of depreciation/amortisation An impairment is reversed if there is both an indication that the impairment no longer exists and there has been a change in the assumptions that served as the basis for determining the recoverable amount. Impairment goodwill is however never reversed. Impairment is reversed only to the extent the carrying amount of the assets following the reversal does not exceed the carrying amount that the asset would have had if the impairment had not been recognised, taking into account the amortisation that would have been recognised. Impairment of loan receivables and accounts receivables reported at accrued acquisition value are reversed if a later increase in the recoverable amount can objectively be attributed to an event that occurred after the write-down was made.

SHAREHOLDERS’ EQUITY Repurchase of shares Ownership of own shares and other equity instruments are reported as a reduction of shareholders’ equity. Purchase of such instruments is reported as a deduction from shareholder’s equity. Payment from sales of equity instruments is reported as an increase of shareholder’s equity. Any transaction expenses are recognised directly against shareholders’ equity. Paid dividends Dividends are recognised as a liability after the Annual General Meeting has approved the dividend. EARNINGS PER SHARE Earnings per share consist of the Group’s net earnings for the year attributable to the Parent Company’s shareholders and the weighted average number of shares outstanding during the year. When calculating earnings per share after dilution, the earnings and the average number of shares are adjusted to take into account the effects of diluting potential ordinary shares, which during the reported periods stem from options issued to employees. EMPLOYEE BENEFITS Defined-contribution pension plans Defined-contribution pension plans are classified as those plans for which OEM only pays fixed amounts and has no obligation to pay additional amounts if the plan’s assets are insufficient and the employee takes the risk for future pension levels. Obligations concerning the amounts to the defined-contribution plans are reported as an expense in the income statement at the rate they are earned as the employees perform their work. Defined-benefit pension plans The Group’s net obligation regarding definedbenefit pension plans is calculated separately for each plan by estimating the future compensation that the employees have earned through their employment in both present and previous periods; this compensation is discounted to current value and the fair value of any investment assets is deducted. The discount rate is the interest rate on balance sheet date for a first-class corporate bond with a maturity corresponding to the Group’s pension obligations. When there is no active market for such corporate bonds, the market interest rate on government bonds with a similar maturity is used instead. Calculations are carried out by a qualified actuary using the projected unit credit method. When the calculation leads to an asset for the group, the carrying amount of the asset is limited to the net of unrecognised actuarial losses and unrecognised costs associated with employment in previous periods and the current value of future repayments from the plan or reduced future payments to the plan. When the compensation in a plan improves, the portion of the increased compensation attributable to the employee’s services in previous periods is expensed through the income statement on a straight-line basis over the average period until the compensation is fully vested. If the compensation is fully vested, an expense is reported directed in the income statement. The corridor rule is applied. The corridor rule means that the portion of the accumulated actuarial gains and losses exceeding 10% of the higher of the obligation’s current value and FINANCIAL REPORTING ❚ OEM ANNUAL REPORT 2006

55


the fair value of assets under management is reported over the anticipated average remaining period of employment of the employees covered by the plan. Actuarial gains and losses are otherwise not taken into account. When there is a difference between how pension expenses are determined for legal entities and the Group, a provision or receivable is reported for separate salary tax based on this difference. The current value of the provision or receivable is not calculated. Severance pay A provision is reported when employees are given notice of termination only if the company is demonstrably obligated to terminate an employment before the normal date or when remuneration is paid as an offer to encourage voluntary resignation. In such cases when the company gives notice to its employees, a detailed plan is prepared containing information about the workplace, positions and approximate number of employees implicated, as well as remuneration for each personnel category or position and the time frame for completion. PROVISIONS A provision is reported in the balance sheet when the Group has a legal or informal obligation owing to an event that has occurred and it is likely that an outflow of economic resources will be required to settle the obligation and a reliable estimate of the amount can be made. Where it is important when in time payment is made, provisions are estimated by discounting the expected future cash flow at a pre-tax interest rate that reflects current market estimates of the time value of many and, where appropriate, the risks associated with the liability. A provision for losses is reported with the underlying products or services are sold. The provision is based on historic data on losses and a total appraisal of feasible outcomes in relation to the probabilities associated with the outcome. FIXED ASSETS HELD FOR SALE AND DIVESTED BUSINESS UNITS The implication of a fixed asset (or a disposal group) classified as held for sale is that its reported value will be recovered principally through a sale and not through use. Immediately prior to classification as held for sale, the reported value of the assets (and all assets and liabilities in a disposal group) is determined in accordance with applicable accounting standards. When initially classified as held for sale, fixed assets and disposal groups are reported at the lower of their carrying amount and fair value with deductions for sales expenses. Certain balance sheet items are exempt from the valuation rules that apply for IFRS 5. On each subsequent reporting date, the fixed asset or disposal group as a whole is valued at fair value with deductions for sales expenses. Losses resulting from a change in value upon initial classification as held for sale are included in the income statement, even in the case of a revaluation. The same applies to gains or losses from subsequent re-evaluations. A divested business unit is a component of a company’s operations that represents an independent operation or significant operations within a geographic area or a subsidiary acquired exclusively with the intent to resale. 56

OEM ANNUAL REPORT 2006 ❚ FINANCIAL REPORTING

Classification as a divested business unit is made upon divestment or at a previous time when the business unit meets the criteria to be classified as held for sale. A disposal group that will be discontinued can also qualify for classification as a divested business unit if it meets the size criteria according to the above. The figures for the comparative years in the consolidated income statement and cash flow statement have been restated and presented as if the business unit sold during the current year had been sold already at the start of the comparative year (refer also to Note 5 and Note 26).

Subsidiaries and associated companies The parent company reports participation in subsidiaries and associated companies according to the acquisition value method. Only dividends received are reported as income on the condition that these stem from profits earned after the acquisition. Dividends that exceed profits earned are considered a repayment of the investment and reduce the reported value of the participation.

TOTAL CONTINGENT LIABILITIES A contingent liability is reported when there is a possible obligation that stems from past events and the existence of which will be confirmed only by one or more uncertain future events, or when there is an obligation that is not recognised as a liability or provision because it is not possible that an outflow of resources will be required.

Sale of goods and completion of service assignments In the Parent Company, income from service assignments is reported according to ÅRL 2, chapter 4 §when the service is completed. Until such time, ongoing work on behalf of another party in regard to the service assignment is reported at the lowest of the acquisition value and net sale value on balance sheet date.

PARENT COMPANY’S ACCOUNTING PRINCIPLES The Parent Company has prepared the Annual Report according to the Annual Accounts Act (1995:1554) and the Swedish Financial Accounting Council’s recommendation RR 32:05 “Reporting for Legal Entities”. Also the Swedish Financial Accounting Council’s Emerging Issues Task Force’s pronouncements for listed companies are applied. RR 32:05 means that the Parent Company in the annual report for the legal entity must apply all EU-approved IFRS and pronouncements as far as possible within the framework of the Annual Accounts Act and taking into account the connections between reporting and taxation. The recommendation specifies exemptions and additions relative to IFRS. The same accounting principles applied for the consolidated financial statements as described above have been applied to the Parent Company, except in the instances described below. Changes in accounting principles The new accounting principles have had a marginal effect on the Parent Company’s profit and financial position for the financial year. Effective 1 January 2006, the regulations in ÅRL 4, chapter 14 §a-e related to valuation of certain financial instruments at the fair value and hedge reporting will be applied, which has meant a change in the accounting principles. This means that the Parent Company by and large applies the same accounting principles for financial instruments as in the consolidated financial statements. At present, application of these regulations are not expected to have an effect on profit and financial position since the Parent Company as insignificant financial assets which will be reported at actual value and does not utilise derivative instruments. Differences between the Group’s and Parent Company’s accounting principles Differences between the Group’s and Parent Company’s accounting principles are described below. The accounting principles for the Parent Company as described below have been applied consistently to all periods presented in the Parent Company’s financial statements.

Income

Anticipated dividends Anticipated dividends from subsidiaries are reported when the parent company has sole right to determine the size of the dividend and the Parent Company has decided on the size of the dividend before the Parent Company has published its financial statements.

Tangible fixed assets Owned assets Tangible fixed assets in the Parent Company are booked at acquisition value after deductions for accumulated depreciations and impairment when applicable in the same applied for the Group but with additions for revaluation of assets when applicable. Leased assets The Parent Company reports all leasing agreements in accordance with the regulations for operating leases. Taxes The Parent Company reports untaxed reserves including deferred tax liabilities. In the consolidated financial statements however, untaxed reserves are divided among deferred tax liability and shareholders’ equity. Group contributions and owner contributions for legal entities The company reports Group contributions and owner contributions in accordance with the pronouncement from the Swedish Financial Accounting Council’s Emerging Issues Task Force. Owner contributions are booked directly against shareholders’ equity for the receiver and capitalised in shares and contributor participations, to the extent that impairment is not required. Group contributions are reported in accordance with their financial substance. This means that Group contributions issued with the purpose of minimising the Group’s total tax are reported directly against profit brought forward after deductions for their current tax effects.


N O T E 2 . A R E A S O F O P E R AT I O N A N D G E O G R A P H I C A R E A S The Group is organised into four segments, OEM Automatic, OEM Electronics, Cyncrona and Development. The Hydraulik segment was divested on 30 November and is reported as divested business unit below. For a description of activities in the business segments refer to pages 20-29 in the Annual Report. Parent Company activities are described in the Directors’ Report. Other operations include the Parent Company, owned shares in underlying companies, property companies owning operating properties where the Group conducts its own business. YEAR 2006 OEM Automatic

OEM Electronics

Cyncrona

Development

Total Other Elimination/ remaining operations Undistributed operations

Divested operations

Total

INCOME External sales

691.3

305.2

244.4

205.0

2.0

1 447.9

142.2

1 590.1

6.5

1.4

0.2

7.7

45.5

-61.3

0.0

-

0.0

697.8

306.6

244.6

212.7

47.5

-61.3

1 447.9

142.2

1 590.1

89.4

18.8

14.2

13.0

-8.7

142.2

Internal sales Total income PROFIT Operating income Other financial items Tax expenses

-

126.7

15.5

0.8

0.8

-0.3

0.5

-36.7

-36.7

-4.3

-41.0

79.9

79.9

90.8

181.6

Profit divested business unit Profit/Loss

89.4

18.8

14.2

13.0

-8.7

-35.9

90.8

O T H E R I N F O R M AT I O N Assets

248.9

102.9

134.3

107.0

562.8

-211.6

944.3

Liabilities

157.5

72.5

82.3

57.5

147.9

-231.4

286.3

10.2

-

-

-

-

-

10.2

4.1

0.8

0.8

1.6

33.0

-

40.3

-

-

-

-

-

-

-

-1.5

-

-

-

-

-

-1.5

-2.5

-0.5

-1.5

-1.5

-5.7

-

-11.7

Investments intangible fixed assets Investments tangible fixed assets Amortisation of goodwill Amortisation of intangible fixed assets Depreciation of tangible fixed assets

YEAR 2005 OEM Automatic

OEM Electronics

Cyncrona

Development

Total Other Elimination/ remaining operations Undistributed operations

Divested operations

Total

INCOME External sales Internal sales Total income

601.2

302.1

284.3

166.5

12.2

1 366.3

158.5

3.6

2.5

0.0

5.3

42.7

-54.1

0.0

0.0

1 524.8 0.0

604.8

304.6

284.3

171.8

54.9

-54.1

1 366.3

158.5

1 524.8

74.7

24.7

18.5

5.1

-13.9

120.3

PROFIT Operating income Other financial items Tax expenses Profit/Loss

74.7

-

109.1

11.2

3.5

3.5

-0.2

3.3

-31.0

-31.0

-3.8

-34.8

24.7

18.5

5.1

-13.9

-27.5

81.6

7.2

88.8

O T H E R I N F O R M AT I O N Assets

174.1

99.7

101.6

84.4

476.1

-258.1

677.8

69.0

746.8

Liabilities

126.7

60.3

46.6

53.1

81.9

-158.0

210.6

40.0

250.6

-

-

-

-

9.9

-

9.9

-

9.9

2.7

0.6

2.2

1.5

13.5

-

20.5

0.8

21.3

-

0.9

-

-

-

-

0.9

-

0.9

-

-

-

-

1.1

-

1.1

-

1.1

2.0

0.5

1.8

0.9

6.8

-

12.0

0.5

12.5

Investments intangible fixed assets Investments tangible fixed assets Amortisation of goodwill Amortisation of intangible fixed assets Depreciation of tangible fixed assets

FINANCIAL REPORTING â?š OEM ANNUAL REPORT 2006

57


( C O N T. N O T E 2 ) GEOGRAPHIC AREAS External sales 2006

Assets

2005

2006

Liabilities

2005

2006

Investments

2005

2006

2005

Remaining business units Sweden

851.3

792.3

610.3

438.0

97.3

91.3

22.4

15.7

Denmark

67.0

57.4

39.3

29.7

24.9

15.6

0.2

0.2

United Kingdom

65.9

60.0

50.0

51.6

18.9

19.4

0.4

0.1

320.8

364.8

153.4

123.9

101.1

65.4

16.5

2.6

6.8

7.3

8.2

8.5

2.4

3.8

0.0

1.1

-

12.6

-

-

-

-

-

0.0

Norway

80.7

42.0

43.5

14.9

27.4

5.3

0.3

0.1

Poland

34.7

29.9

11.0

10.7

6.4

8.5

0.1

0.6

Estonia

-

0.0

3.5

0.5

3.1

1.3

0.4

0.1

20.7

-

25.1

-

4.8

-

0.0

-

1,447.9

1, 366.3

944.3

677.8

286.3

210.6

40.3

20.5

142.2

158.5

-

69.0

-

40.0

1 590.1

1 524.8

944.3

746.8

286.3

250.6

Finland The Netherlands Italy

Czech Republic Total remaining business units

Divested business units Sweden Total

0.8 40.3

21.3

N O T E 3 . O T H E R O P E R AT I N G I N C O M E THE GROUP 2006

PARENT COMPANY 2005

2006

2005

Capital gain tenant-owner right

1.8

-

1.8

-

Capital gain property

0.7

-

-

-

Total

2.5

-

1.8

-

N O T E 4 . A C Q U I S I T I O N O F O P E R AT I O N S On 12 April 2006, the Group acquired 100% of the shares in EIG spol. s.r.o., subsequently name changed to EIG — OEM Automatic spol. s.r.o. for EUR 3.2 million. The company operates in the Czech Republic. 90% was paid cash in 2006 and the remaining 10% will be paid in 2007 in accordance with the agreement. The company trades in automation components and has been in business since 1990. It represents several of company group OEM Automatic’s most important suppliers, thereby generating significant synergy effects. During the first nine months that followed the acquisition, the subsidiary contributed SEK 1.8 million to the Group’s profit in 2006. If the acquisition had been made per 1 January, the effect on the Group’s profit would have been SEK 4.3 million. EFFECTS OF THE ACQUISITION Net assets of the acquired company on acquisition (SEK m):

Tangible fixed assets Intangible fixed assets

Fair value adjustment

Fair value in the Group

6.1

5.7

11.8

-

11.1

11.1

Inventories

4.6

4.6

Accounts receivable and other receivables

4.4

4.4

Liquid funds

7.3

Latent tax liabilities Accounts payable and other liabilities Net identifiable assets and liabilities

-

7.3 -4.1

-4.1

12.7

29.9

-5.2 17.2

-5.2

Group goodwill

-

Purchase price

-29.9

Due in accordance with agreement Cash and bank balance (acquired) Net cash flow Other information about intangible assets, refer to Note 14. 58

Booked value in OEM Automatic spol.s.r.o.

OEM ANNUAL REPORT 2006 ❚ FINANCIAL REPORTING

-3.0 7.3 -19.6


NOTE 5. DIVESTED BUSINESS UNITS On 30 November, the Group sold the Hydraulik group comprised of JMS Systemhydraulik AB and affiliated property company, Fastighets AB Hydraulen, where the company conducts its business activities in Borås. Hydraulik was an independent operating segment, refer to Note 2. The criteria for presentation as a divested business unit was not reached on 31 December 2005 and the comparative figures have therefore been restated to show the divested business unit separate from the continued operations. The Board’s plan to divest the business unit was adopted during the second half of 2006 together with a decision that JMS Systemhydraulik AB is a relatively small player on a large market, one which is concentrated to a few major players. The purchase price was SEK 120 million.

PROFIT FROM DIVESTED BUSINESS UNITS 2006

2005

Income

142.2

158.5

Trading goods

-92.6

-105.5

Other expenses

-8.9

-14.7

-24.4

-26.3

Depreciation of tangible fixed assets

-0.8

-0.8

Financial expenses

-0.3

-0.2

Profit before tax

15.2

11.0

Tax

-4.3

-3.8

Profit after tax but before the profit of selling the divested business units

10.9

7.2

Profit from selling divested business units after tax

79.9

-

Profit from divested business units, net after tax

90.8

7.2

before dilution, SEK

11.76

0.92

after dilution, SEK

11.71

0.92

Personnel expenses

Earnings per share from remaining business units

EFFECT ON INDIVIDUAL ASSETS AND LIABILITIES IN THE GROUP OF THE SALE Intangible fixed assets

2006

-6.4

Tangible fixed assets

-10.1

Inventories

-28.1

Accounts receivable

-27.2

Other receivables

-2.0

Liquid funds

-0.8

Deferred tax liabilities Accounts payable, trade Other liabilities

0.5 17.0 28.4

Divested assets and liabilities, net

-28.7

Purchase price

120.0

Deducted: Not paid 2006, to be paid 2007

-45.6 74.4

Deducted: Liquid funds in the divested business units

-0.8

Impact on liquid funds

73.6

FINANCIAL REPORTING ❚ OEM ANNUAL REPORT 2006

59


NOTE 6. EMPLOYEES AND PERSONNEL EXPENSES

AVERAGE NO. OF EMPLOYEES

2006

Whereof men

2005

Whereof men

PA R E N T C O M PA N Y Sweden

19

79%

21

81%

SUBSIDIARIES Sweden

299

79%

278

82%

Denmark

22

73%

26

73%

United Kingdom

29

90%

29

86%

Finland

90

81%

89

80% 50%

The Netherlands

2

50%

2

Czech Republic

8

88%

-

-

China

18

89%

12

92%

Norway

18

83%

18

83%

Poland

23

78%

17

76%

Estonia

3

100%

2

100%

Total in subsidiaries

512

80%

473

81%

Group total

531

80%

494

81%

S A L A R I E S , O T H E R R E M U N E R AT I O N A N D S O C I A L S E C U R I T Y E X P E N S E S

2006 Salaries and remuneration

Parent company (Whereof pension expenses)

Subsidiaries

(Whereof pension expenses)

Social security expenses

Salaries and remuneration

Social security expenses

14.1

7.2

15.9

8.2

1)

(2.4)

1)

(2.4)

63.2

146.5

160.8

(Whereof pension expenses)

Group total

2005

(15.0)

51.1 (12.8)

174.9

70.4

162.4

59.3

2)

(17.4)

2)

(15.2)

1) SEK 0.6 million (last year SEK 0.4 million) of Parent Company pension expenses relate to the Group’s Board of Directors and Managing Director. There are no pension obligations for this group. 2) SEK 2.8 million (last year SEK 2.4 million) of Group pension expenses relate to the Group’s Board of Directors and Managing Director. There are no pension obligations for this group.

60

OEM ANNUAL REPORT 2006 ❚ FINANCIAL REPORTING


S A L A R I E S A N D O T H E R R E M U N E R AT I O N D I S T R I B U T E D P E R C O U N T RY A N D B E T W E E N BOARD MEMBERS, ETC. AND OTHER EMPLOYEES 2006 Board and Managing Director

2005 Other employees

Board and Managing Director

Other employees

PA R E N T C O M PA N Y Sweden (Whereof bonus)

3.7

10.4

(0.6)

4.1

11.9

(1.0)

SUBSIDIARIES Sweden (Whereof bonus)

Denmark (Whereof bonus)

5.1

0.8

0.8

(Whereof bonus)

(0.1)

(Whereof bonus)

3.2

0.6

(Whereof bonus)

(0.1)

Norway (Whereof bonus) China (Whereof bonus) Poland (Whereof bonus) Estonia

1.9

-

-

Czech Republic

0.4

(Whereof bonus)

(0)

Group total (Whereof bonus)

REMUNERATION FOR SENIOR EXECUTIVES AND BOARD MEMBERS Board of Directors Remuneration has been paid to the Board to the amount of SEK 1.0 million, of which the Chairman, Hans Franzén, received SEK 0.4 million and other members each received SEK 0.1 million. CEO/Managing Director Salary and other benefits paid to the Managing Director amounted to SEK 2.7 million. In addition, the Company contributed SEK 0.6 million to a retirement insurance policy. This is defined contribution. SEK 0.6 million was paid in bonus based on attained profit level which gave a 28% result for 2006. Bonus could be paid at a maximum of 50% of the annual salary. The period of notice for the Managing Director is 24 months from the Company’s side, with the obligation to work, and 6 months from the Managing Director’s

13.5

28.0

(2.2)

side. Retirement age for the Managing Director is 60 years. CEO/ Managing Director’s salary and remuneration is set by the Board. Other Senior Executives Salaries and other benefits for senior management, excluding the Managing Director (6 people) in 2006 amounted to SEK 6.0 million. Contribution-based pension premiums amounted to SEK 1.1 million. Bonus amounted to SEK 0.9 million but can be paid to a maximum of 40 percent of the annual salary based on attained results. The period of notice for other senior executives is maximum 12 months from the company’s side, with the obligation to work, and maximum 6 months from the employee’s side. If the company serves notice after the age of 55 years, a further maximum of 6 months salary is paid. Retirement age for other senior executives is between 60 and 65 years.

12.1

0.7

7.7

3.5

26.8

(0.8) 0.3

0.6

0.2

(0.2) 9.5

1.7

6.2

(0.2) 0.4

-

0.2

(-) 3.1

0.7

2.6

(0.1) 0.4

-

0.2

(-) 0.8

-

-

(-)

147.3

(1.6) 17.2

0.7

(0.0)

(0.1)

(-)

(Whereof bonus)

8.4

(-) 0.7

77.8

(-)

(0.3)

(Whereof bonus)

Subsidiaries total

9.9

(0.6)

The Netherlands

4.7 (0.3)

(0.1)

United Kingdom

Finland

86.5

(0.3)

12.6

133.8

(1.6) 157.7

16.7

145.7

(2.6)

Options issued to Senior executives In 2003, OEM International introduced an incentive program in accordance with the Annual General Meeting’s resolution. The program is an option scheme directed at other senior executives within the Group. 40,000 share options were issued on the basis of repurchased B shares held by the Company. The maximum allocation per person is 10,000 options each. Each purchase option entitled the holder to purchase one (1) share in the company at a price of SEK 120 between August and November 2006. The purchase options are transferred at market price calculated by an independent appraisal institute. The retained option premium is reported as an increase in non-restricted equity. Because the price was the market value the agreements are not associated with any costs to OEM. All options have been utilised during the above period. There are no outstanding options as per the turn of the year.

FINANCIAL REPORTING ❚ OEM ANNUAL REPORT 2006

61


( C O N T. N O T E 6 )

S I C K L E A V E PA R E N T C O M PA N Y 2006

2005

Total sick leave as a proportion of normal working hours

1.3%

0.5%

Proportion of total sick leave that refers to continuous sick leave of 60 days or more

0.0%

0.0%

Men

0.4%

0.3%

Women

4.4%

1.6%

29 years old or younger

0.0%

0.0%

30-49 years

0.7%

0.6%

50 years old or older

4.3%

0.0%

SICK LEAVE AS A PROPORTION OF EACH GROUP’S NORMAL WORKING HOURS Sick leave by gender:

S I C K L E A V E B Y A G E C AT E G O RY:

GENDER DISTRIBUTION THE GROUP

PARENT COMPANY

(Share of women) 2006

(Share of women) 2005

2006

2005

Board of Directors

0%

0%

0%

0%

Other Senior Executives

0%

0%

0%

0%

FEES AND REIMBURSEMENT OF EXPENSES TO THE AUDITORS

THE GROUP 2006

PARENT COMPANY 2005

2006

2005

KPMG Audit assignments

1.1

1.0

0.2

0.2

Other assignments

0.1

0.1

0.1

0.1

0.3

0.3

OTHER AUDITORS Audit assignments

0.6

0.6

Total

1.8

1.7

Audit assignments refers to examining the annual report and accounts, and the administration by the Board and the Managing Director, any other tasks that fall to the Company’s auditors, and providing counsel or any other contribution brought about by observations during that review, or in performing other such tasks. All else falls under other assignments.

N O T E 7 . D E P R E C I AT I O N / I M PA I R M E N T O F TA N G I B L E A N D I N TA N G I B L E F I X E D A S S E T S THE GROUP 2006

Goodwill, impairment

2006

2005

-

-0.9

-

Intangible fixed assets, amortisation

-1.5

-

-

-

Buildings and land, depreciation

-2.8

-2.7

-0.6

-0.6

Equipment, tools and installations, depreciation

-9.2

-9.0

-1.2

-1.1

-13.5

-12.6

-1.8

-1.7

Total

62

PARENT COMPANY 2005

OEM ANNUAL REPORT 2006 ❚ FINANCIAL REPORTING

-


N O T E 8 . I N C O M E F R O M S H A R E S I N G R O U P C O M PA N I E S PARENT COMPANY 2006

Dividends received

2005

2.7

Capital gain sold shares

-

-

-3.5

104.2

28.5

Write-off shares Total

32.0

101.5

N O T E 9 . S H A R E S I N E A R N I N G S O F A S S O C I AT E D C O M PA N I E S / I N C O M E F R O M S H A R E S I N A S S O C I AT E D C O M PA N I E S THE GROUP 2006

Dividends received

PARENT COMPANY 2005

2006

2005

-

-

1.0

1.1

Income from shares in associated companies

1.0

1.3

-

-

Total

1.0

1.3

1.0

1.1

NOTE 10. FINANCIAL INCOME/OTHER INTEREST INCOME AND SIMILAR INCOME ITEMS THE GROUP 2006

PARENT COMPANY 2005

2006

2005

Interest income

2.7

2.4

2.3

Other financial items

0.8

2.7

-

2.1 -

Total

3.5

5.1

2.3

2.1

NOTE 11. FINANCIAL EXPENSES/INTEREST EXPENSES AND SIMILAR INCOME ITEMS THE GROUP 2005

PARENT COMPANY 2004

2005

2004

Interest expenses

-2.4

-1.9

-0.3

Other financial expenses

-1.3

-1.0

-

-

-3.7

-2.9

-0.3

0.0

Total

0.0

FINANCIAL REPORTING ❚ OEM ANNUAL REPORT 2006

63


N O T E 1 2 . TA X E S THE GROUP 2006

PARENT COMPANY 2005

2006

2005

Current tax

-33.9

-29.7

3.7

2.1

Deferred tax

-2.8

-1.3

0.0

-0.1

-36.7

-31.0

3.7

2.0

-16.3

-24.0

Total reported tax expenses Tax relating to items reported directly against capital

L I N K B E T W E E N TA X E X P E N S E S F O R T H E Y E A R A N D I N C O M E B E F O R E TA X

Reported income before tax

127.5

112.6

91.4

21.5

Applicable tax rate for income tax in Sweden

-35.7

-31.5

-25.6

-6.0

-0.4

-0.2

-

-

-

-

1.0

9.2

Amortisation/impairment of consolidated intangible assets Non-taxable share dividends Non-taxable gain from sale of shares in subsidiaries

-

-

28.4

-

Write-off shares

-

-

-

-1.0

-0.6

0.7

-0.1

-0.2

-36.7

-31.0

3.7

2.0

Deficit deductions

1.9

3.1

Goodwill

1.4

1.5

Other

0.6

1.0

Total deferred tax claims

3.9

5.6

Other items Total reported tax expenses

D E F E R R E D TA X C L A I M S

D E F E R R E D TA X L I A B I L I T Y

Intangible fixed assets

2.3

-

-

-

Buildings and land

7.8

4.7

1.7

1.7

Untaxed reserves Total deferred tax liability

16.5

16.9

-

-

26.6

21.6

1.7

1.7

The Group has SEK 2.3 million (2.6) in inactive deferred tax claims corresponding to deficit deduction, which, when valued in accordance with the probability principle, cannot be assumed to be usable as it is not possible to offset the surpluses against these within a reasonable period of time. Deficit deductions that are not calculated and can be used within 3 years have not been activated.

NOTE 13. GOODWILL THE GROUP 2006

2005

A C C U M U L AT E D A C Q U I S I T I O N VA L U E S At the start of the year New acquisitions

15.6

15.6

-

-

Divestments

-6.4

-

Total acquisition value

9.2

15.6

-6.2

-5.3

-

-0.9

-6.2

-6.2

3.0

9.4

A C C U M U L AT E D I M PA I R M E N T S At the start of the year Impairments Total impairments Residual value at year-end

64

OEM ANNUAL REPORT 2006 â?š FINANCIAL REPORTING


I M PA I R M E N T T E S T F O R I N TA N G I B L E A S S E T S

The companies have performed impairment tests on cash-generating units containing goodwill and intangible assets that have an indeterminable useful life, based on the usage values of the units.

G O O D W I L L A N D I N TA N G I B L E A S S E T S W I T H A N INDETERMINABLE USEFUL LIFE Companies

2006

JMS Systemhydraulik AB Indoma AB

2005

-

6.4

3.0

3.0

3.0

9.4

Telfa AB

8.8

8.8

EIG - OEM Automatic spol.s.r.o.

8.7

-

17.5

8.8

20.5

18.2

Total

The above specified amounts refer to goodwill for Indoma AB, amounting to SEK 3.0 million, acquired supplier relations for Telfa AB, amounting to SEK 8.8 million and EIG — OEM Automatic spol. s.r.o. whose value is determined by customer relations at a reported value of SEK 8.7 million, refer to Note 14. Impairment of SEK 0.9 million made on goodwill relate to subsidiaries where expected earning capacity may not justify the goodwill balance which has consequently been written off entirely and is thus not included in the above list. The usage values are based on estimated future cash flows for a total of five (5) years with the starting point in the existing business plans for the next three (3) years. The principal assumptions for the valuation for all cash-generating units are assumptions about margins and volume growth. The business plans are based on experience from previous years. Current market shares are expected to increase marginally in the forecast period. According to the business plans, operational growth is expected to reach between 5 and 10% each year. Growth is expected to be 3 to 5% each year for other years in the period of use. The gross profit margins are expected to reach the same level as at the end of 2006. The forecast cash flows have been converted to a present value using a discount rate of 12% before tax. The recoverable values for the units are greatly in excess of their reported values. The Company management is of the opinion that no reasonable changes in the key assumptions will lead to the estimated recoverable values for the units being lower than the reported values.

N O T E 1 4 . O T H E R I N TA N G I B L E A S S E T S THE GROUP 2006

A C C U M U L AT E D A C Q U I S I T I O N VA L U E S At the start of the year New acquisitions

2005

9.9 11.1

9.9

21.0

9.9

-1.1 -2.4

-1.1

Total amortisation

-3.5

-1.1

Residual value at year-end

17.5

8.8

Total acquisition value A C C U M U L AT E D A M O R T I S AT I O N At the start of the year Amortisation

The purchase sum paid for the acquisition of Telfa AB in 2005 exceeded the net of assets and liabilities in the Company by SEK 9.9 million. The surplus value was analysed and distributed as SEK 1.1 million to orders on hand and SEK 8.8 million to supplier relations. The value of orders on hand relates to contribution margin and is amortised in line with invoicing. At the end of the year, all invoicing had been completed and SEK 1.1 million has been amortised. The amount has been charged to costs for trading goods. The purchase sum paid for the acquisition of EIG — OEM Automatic spol.s.r.o. in 2006 exceeded the net of assets and liabilities in the Company by SEK 11.1 million. The surplus value was analysed and distributed as SEK 0.9 million to orders on hand and SEK 10.2 million to supplier relations. The value of orders on hand relates to contribution margin and is amortised in line with invoicing. At the end of the year, all invoicing had been completed and SEK 0.9 million has been amortised. The amount has been charged to costs for trading goods. Customer relations amounting to SEK 10.2 million are assessed to have a useful life of five (5) years, which means that these will be amortised by 20% every year. Impairment test for other intangible assets, refer to Note 13.

FINANCIAL REPORTING ❚ OEM ANNUAL REPORT 2006

65


N O T E 1 5 . TA N G I B L E F I X E D A S S E T S 31.12.2006

PA R E N T C O M PA N Y

Buildings and land

31.12.2005

Equipment, tools and installations

Buildings and land

Equipment, tools and installations

A C C U M U L AT E D A C Q U I S I T I O N VA L U E S At the start of the year

125.6

126.1

138.8

129.3

New acquisitions

25.8

15.3

2.2

17.9

Acquired through business acquisitions

13.4

0.9

-

4.5

-22.3

-25.2

-18.4

-27.0 -0.9

Sales and disposals Reclassifications Translation differences for the year Total acquisition value

-

0.6

-

-1.4

-1.2

3.0

2.3

141.1

116.5

125.6

126.1

-33.0

-96.2

-33.9

-98.1

-1.6

-0.9

5.8

19.2

4.3

15.5

-2.8

-9.2

-3.0

-9.5

-

-0.7

-

1.2

0.5

1.1

-0.4

-2.0

-31.3

-86.7

-33.0

-96.2

109.8 *

29.8

92.6 *

29.9

A C C U M U L AT E D D E P R E C I AT I O N A C C O R D I N G T O P L A N

At the start of the year Acquired through business acquisitions Sales and disposals

-3.3

The year’s depreciation according to plan at acquisition values Reclassifications Translation differences for the year Total depreciation according to plan Booked value at end of the year

*The value of the buildings amounts to 100.8 (82.8) for the Group and 17.6 (18.2) for the parent company.

31.12.2006

PA R E N T C O M PA N Y

Buildings and land

31.12.2005

Equipment, tools and installations

Buildings and land

Equipment, tools and installations

A C C U M U L AT E D A C Q U I S I T I O N VA L U E S At the start of the year

26.9

19.5

26.8

0.2

0.6

0.1

1.9

-

-1,1

-

-0.6

27.1

19.0

26.9

19.5

-8.1

-16.1

-7.5

-15.6

-

0.9

-

0.6

-0.6

-1.2

-0.6

-1.1

-8.7

-16.4

-8.1

-16.1

18.4 *

2.6

18.8 *

3.4

At the start of the year

0.0

-0.6

-0.2

-0.3

Annual change

0.0

0.2

0.2

-0.3

0.0

-0.4

0.0

-0.6

18.4

2.2

18.8

2.8

New acquisitions Sales and disposals

18.2

A C C U M U L AT ED DEPREC I AT I ON AC C ORDI N G TO PLA N At the start of the year Sales and disposals The year’s depreciation according to plan at acquisition values

Residual value acc. to plan at year-end A C C U M U L AT E D E X C E S S D E P R E C I AT I O N

Booked value TA X AT I O N VA L U E

66

Buildings

8.6

8.6

Land

1.0

1.0

Total taxation value

9.6

9.6

OEM ANNUAL REPORT 2006 ❚ FINANCIAL REPORTING


N O T E 1 6 . S H A R E S A N D PA R T I C I PAT I O N I N G R O U P C O M PA N I E S

Corp.id.no.

Registered office

No. of shares

Share of capital

Face value

Booked value

5 000

46.2

100

1.5

300

78.4

10.3

OEM Industrial Components AB, Sweden

556051-4514

Tranås

100 000

100%

OEM Automatic AB, Sweden

556187-1012

Tranås

-

100%

OEM Automatic AS, Norway

-

-

-

100%

OEM Automatic A/S, Denmark

-

-

-

100%

OEM AutomaticOY, Finland

-

-

-

100%

OEM Automatic Ltd, UK

-

-

-

100%

OEM Automatic sp.z o.o., Poland

-

-

-

100%

OEM China Development B.V, Netherlands

-

-

-

100%

100%

Internordic Bearings AB, Sweden

556493-8024

Nässjö

Egevo Elektronik AB, Sweden

556311-3306

Stockholm

-

OEM Electronics AB, Sweden

556054-3828

Tranås

-

100%

Pronesto AB, Sweden

556112-6755

Stockholm

-

100%

-

-

-

100%

556326-5171

Jönköping

-

100%

OEM Electronics OY, Finland Indoma AB, Sweden

OEM Systemteknik AB, Sweden

556050-9076

Stockholm

1 000

100%

A. Karlsson Industriteknik AB, Sweden

556163-0905

Stockholm

-

100% 100%

Jubo Förvaltning AB, Sweden

556494-7058

Karlskoga

-

IBEC Bearings AB, Sweden

556194-8521

Stockholm

-

100%

Skäggriskan AB, Sweden

556248-9780

Stockholm

-

100%

Technology AB, Sweden

556038-8356

Stockholm

300

100%

Cyncrona AB, Sweden

556296-1838

Stockholm

-

100%

Annual change

OEM Electronics Production

Cyncrona AS, Norway

-

-

-

100%

Cyncrona OY, Finland

-

-

-

100%

Cyncrona A/S, Denmark

-

-

-

100%

Cyncrona Sp.z.o.o, Poland

-

-

-

100%

A. Karlsson Fastigheter AB, Sweden

556029-8456

Stockholm

10 000

100%

1 000

Intermate Electronics AB, Sweden

556266-6874

Tranås

1 000

100%

100

0.6

-

-

1 300

100%

DKK 1 300

1.2

OEM Ejendomsselskab A/S, Denmark OEM Fastighetsbolag AB, Finland

-

-

1 200

100%

FIM 1 200

1.4

OEM Property Ltd, UK

-

-

400 000

100%

GBP 400

5.1

OEM Motor AB, Sweden

556650-6498

Tranås

1 000

100%

100

0.1

Internordic Förvaltning AB, Sweden

556302-0873

Nässjö

1 000

100%

100

1.3

JMS Systemhyraulik AB, Sweden

556063-2134

Göteborg

10 000

100%

1 000

i Ängelholm AB, Sweden

556241-1099

Ängelholm

2 500

100%

250

0.8

Hydrac AB, Sweden

556466-0875

Borås

2 000

100%

200

0.1

-18.5

Hydroprodukter International

Fastighets AB Hydraulen, Sweden

556363-6256

Borås

1 000

100%

100

Fotbromsen AB, Sweden

556150-4282

Karlskoga

5 000

100%

500

1.0

-0.1

Telfa AB, Sweden

10.0

556675-0500

Göteborg

1 000

100%

100

OEM Eesti Ou., Estonia

-

-

10 000

100%

40

0.0

EIG - OEM Automatic spol.s.r.o. , Czech Republic

-

-

-

100%

CZK 100

29.9

29.9

187.9

11.3

Total

FINANCIAL REPORTING ❚ OEM ANNUAL REPORT 2006

67


N O T E 1 7 . S H A R E S A N D PA R T I C I PAT I O N I N A S S O C I AT E D C O M PA N I E S

Corp.id.no.

Registered office

No. of shares

Share of capital

Nom. value

Booked value

Annual change

556197-1911

Stockholm

12 000

50%

1 200

5.6

0,0

556197-1911

Stockholm

12 000

50%

1 200

1.2

-

THE GROUP Crouzet AB, Sweden

PA R E N T C O M PA N Y Crouzet AB, Sweden

S P E C I F I C AT I O N F O R G R O U P VA L U E S R E L AT E D T O O W N E D S H A R E O F I N C O M E , P R O F I T, A S S E T S A N D L I A B I L I T I E S .

Owned share as %

Country

Income

Profit /Loss

Assets

Liabilities Shareholders’ equity

50%

Sweden

25.8

1.0

12.2

6.6

5.6

50%

Sweden

25.8

1.3

11.5

5.9

5.6

2006 Crouzet AB

2005 Crouzet AB

N O T 1 8 . P R E PA I D E X P E N S E S A N D A C C R U E D I N C O M E THE GROUP 2006

Accrued commission income, etc. Other prepaid expenses Total

PARENT COMPANY 2005

2006

2005

1.8

0.8

-

-

11.2

13.9

2.8

2.8

13.0

14.7

2.8

2.8

NOTE 19. SHAREHOLDERS’ EQUITY The shares consist of Class A and Class B. The face value is SEK 5. 2006 Shares

Class A shares

10 votes

Class B shares

1 vote

1 589 032

2005 Votes

15 890 320

Shares

Votes

1 589 032

15 890 320

6 134 071

6 134 071

6 134 071

6 134 071

7 723 103

22 024 391

7 723 103

22 024 391

For further information, see the section on share on pages 76-79.

NOTE 20. FINANCIAL LEASING LIABILITIES THE GROUP 2006

2005

Financial leasing liabilities fall due for payment as shown below: Within one year

2.9

2.8

Between one and five years

9.3

8.9

-

-

12.2

11.7

Later than in five years Total The financial leasing liabilities relate to leasing of cars.

68

OEM ANNUAL REPORT 2006 ❚ FINANCIAL REPORTING


N O T E 2 1 . P R O V I S I O N S F O R P E N S I O N S A N D S I M I L A R O B L I G AT I O N S D E F I N E D - B E N E F I T O B L I G AT I O N S A N D VA L U E O F A D M I N I S T R AT I O N A S S E T S .

31.12.2006

Current value of entirely or partially funded obligations

31.12.2005

8.3

8.5

Fair value of administration assets

-8.3

-8.5

Total entirely or partially funded obligations

0.0

0.0

-

-

0.0

0,0

0.0

0.0

Norway

0.0

0.0

Net amount in balance sheet (obligations + assets -)

0.0

0.0

Current value of non-funded defined-benefit obligations

Net amount in balance sheet (obligations + assets -)

The net amount reported in the balance sheet: Provisions for pensions and similar obligations

The net amount is split over plans in the following countries:

PENSION EXPENSES Defined-benefit plans Expenses for pensions earned during the year

0.5

0.4

Interest expenses

0.4

0.4

Expected return on administration assets

-0.5

-0.5

Expenses for defined-benefit plans

0.4

0.3

Salary tax

0.1

0.1

Total expenses for remuneration after completed employment

0.5

0.4

R E C O N C I L I AT I O N O F N E T A M O U N T F O R P E N S I O N S I N T H E B A L A N C E S H E E T The following table explains how the net amount in the balance sheet has changed during the period

Net amount as of 01.01.05 Expenses for defined-benefit plans

2.2 0.4

Payments of contributions from the Company

-0.8

Divestment of subsidiaries

-1.8

Net amount in the balance sheet as of 31.12.05 Expenses for defined-benefit plans

0.0 0.5

Payments of contributions from the Company

-0.5

Net amount in the balance sheet as of 31.12.06

0.0

ACTUARIAL COMMITMENTS The following significant actuarial commitments have been applied when calculating the obligations: (weighed average values)

Discount rate

5.5%

Expected return on administration assets

6.5%

Future salary increases

3.0%

Future increases of pensions Employee turnover Expected remaining length of service

Pledged assets for pension obligations

3.0% 10.0% 18 years

None

FINANCIAL REPORTING â?š OEM ANNUAL REPORT 2006

69


( C O N T. N O T E 2 1 ) In Norway and Italy all employees are covered by defined-benefit pension plans. In countries other than Sweden, all employees are covered by defined-contribution plans for which the Company pays fixed contributions to a separate legal entity and has no obligation to pay further contributions. The Group’s results are burdened by costs as the benefits are earned. Take up of old age pension and family pension by a small section of the employees in Sweden is secured by an insurance policy with Alecta. According to a statement from the Swedish Financial Accounting Standards Council’s Emerging Issues Task Force, URA 42, this is a defined benefit plan which covers several employers. The Company has not had access to sufficient information to make it possible to report this plan as a defined benefit plan for financial years 2005 and 2006. The pension plan according to ITP, which is secured via insurance with Alecta, is therefore reported as a defined-contribution plan. Expenses this year for pension insurance with Alecta amount to SEK 1.9 million (2.6). Alecta’s excess can be allocated to the policy holders and/or the insured. At the end of 2006, Alecta’s excess in the form of the collective consolidation level was 143.15% (128.5). The collective consolidation level is made up of the market value of Alecta’s assets as a percentage of the insurance commitment calculated according to Alecta’s insurance calculation premise, which does not comply with IAS 19. Most of the employees in Sweden are covered by defined-contribution plans. The Group’s total cost for defined-contribution plans is SEK 14.9 million (13.2).

NOTE 22. OVERDRAFT The majority of the Swedish companies are connected to a central account system with a total limit of SEK 150 million (180). The overall degree of utilisation is reported in the Parent Company under this item. The subsidiaries’ balance/liability in the central account system is reported in the Parent Company, either as a receivable from, or a liability to, the subsidiaries. The total limit in the Group is SEK 260 million (293).

PLEDGED ASSETS TO CREDIT INSTITUTES THE GROUP 2006

PARENT COMPANY 2005

2006

2005

Property mortgages

20.0

27.7

7.5

Business mortgages

55.1

69.7

-

-

75.1

97.4

7.5

7.5

Total

7.5

N O T E 2 3 . A C C R U E D E X P E N S E S A N D P R E PA I D I N C O M E THE GROUP 2006

PARENT COMPANY 2005

2006

2005

Accrued holiday pay

19.4

21.0

1.8

Accrued social security expenses

11.3

12.5

1.7

2.3

1.6

1.2

0.0

0.0

Prepaid income Accrued supplier inv./commercial debts Other accrued expenses Total

2.1

5.2

7.8

-

-

22.2

21.4

4.1

4.9

59.7

63.9

7.6

9.3

NOTE 24. FINANCIAL RISKS AND RISK MANAGEMENT

The OEM Group’s primary risks are connected to currencies, customer credits and customer guarantees. Through matching, however, the risks have almost been completely eliminated. A risk elimination that contributes to the Group having a relatively stable coverage ratio over time. In addition to the named risks, the Group has a limited interest risk in the form of a cash flow risk. The currency risks are primarily due to purchases being made in foreign currency. The risks are managed by the customer contract often prescribing that the price must be adjusted in relation to any currency changes. Alternatively, the sale is carried out in the same currency as

70

OEM ANNUAL REPORT 2006 ❚ FINANCIAL REPORTING

the purchase. A detailed report is given in connection with the following table. The customer credit risks are small. Defined customer limits are carefully decided and strictly applied. Short credit periods and absence of risk concentrations for individual customers, segments or geographic areas contribute to a good risk picture, one that is confirmed by the small historical customer losses. Further information is given below in connection with the heading customer and credit risks. Customer guarantees have not been a cause of any risks of practical significance. There are often corresponding rights of recourse against

the supplier for provided guarantees. This management has worked well in practice. The interest risk is low. The Group does not have any liabilities with fixed interest, and long-term receivables with fixed interest are very small. The risk of a shift in the interest rate causing a significant change in fair value is thus non-existent. The cash and bank items, the overdraft item and other interest-bearing liabilities (financial leasing) are marred by cash flow risks. FINANCIAL INSTRUMENTS The OEM Group’s holdings of financial instruments that form fixed assets are fairly limited. At the end


of 2006, the book value of the financial assets of long-term securities holdings was SEK 1.3 million (1.6), shares in tenant-owners’ rights SEK 1 million and other long-term receivables SEK 0.5 million (0.4). The Group’s holding of financial instruments that represent current assets amounted at year end to SEK 206 million (213) and accrued income to SEK 1.8 million (0.8) and other receivables to SEK 55.0 million (13.3). The Group does not have any liabilities with fixed interest and at year-end long-term receivables amounted to SEK 0.5 million (0.4), which is less than one percent of total assets. The risk of a shift in the interest rate causing a significant change in fair value is thus non-existent. The item cash and bank balance SEK 288 million (150), the overdraft item SEK 53.1 million (44.2) and other interestbearing liabilities (financial leasing) SEK 12.2 million (11.7) have variable interest rates and are thus marred by cash flow risks. Overdrafts apply for one (1) year and are not combined with any specific requirements from the guarantor.

CURRENCY EXPOSURE The currency flow of the Group is attributable to imports from Europe, Asia and North America. Purchasing is split as a percentage as follows: 2006

2005

EUR

53%

45%

USD

11%

18%

SEK

7%

8%

GBP

5%

5%

JPY

12%

15%

Other currencies

12%

9%

100%

100%

Exchange rate changes significant currencies Currency Weighed average 2006

Weighed average 2005

Change

EUR 1

9,24

9,25

-0,11%

USD 1

7,35

7,44

-1,21%

GBP 1

13,54

13,51

0,22%

JPY 1

6,33

6,74

-6,08%

As long as it is possible, the Group eliminates the effects of exchange rates by using currency clauses in the customer contract and by purchasing and selling in the same currency. On the whole, purchasing is carried out in the supplier’s functional currency. From the table above it can be seen that 11% (18) for USD, 53% (45) for EUR, 12% (15) for Yen and 5% (5) for GBP 7% (8) for SEK and 12% (9) for other currencies are attributable to purchasing in 2006. The OEM Group manages the effects of changing exchange rates by currency clauses in the sales contract and by invoicing in the same currency as the corresponding purchase. OEM sells goods to Swedish and foreign customers and either invoices in the purchasing currency or in another currency with currency clauses with regard to the purchase currency. The currency clauses adjust 80-100% of the changes in the exchange rate from the sales order to the date of invoicing, depending on whether OEM receives currency compensation for the profit margin or not. There is often a threshold value, which means that exchange rate changes below 2.25% are not taken into account. Currency adjustments are made symmetrically for rising and falling currency rates. There are no conditions that give debt ratios or that are similar to options. Currency clauses and sales in the purchasing currency make up about 75% (80) of all sales contracts. Where purchasing is based on sales orders, economic hedging of currency risks is achieved in sales and purchasing. However, in many cases there is a mismatch in timing between purchase orders and sales orders. Purchase orders normally run 7-60 days prior to delivery. The customer credit period is about 30 days. The currency adjustment clauses means that only currency changes between the time of sale and the time of invoicing affect the amount reported in Swedish Kronor. Since invoicing, in accordance with currency adjustment clauses, is carried out in SEK, there is no exchange rate difference after the date of invoicing. OEM applies the same terms and conditions for adjusting currencies and prices for its Swedish and overseas customers. The changes in values related to the multiple currency clauses are therefore treated consistently from the points of view of risk and accounting. With regard to

currency risk, it can be determined that OEM also has balance exposures in the form of net investment in independent foreign operations. At present, these currency risks are not hedged. Currency rates are used in the Group’s consolidated accounts for recalculating foreign subsidiary’s income and net assets. Currency

Weighed average 2006

December 2006

NOK 100

114,99

109,49

DKK 100

123,97

121,03

EUR 1

9,2366

9,0138

GBP 1

13,5376

13,4178

PLN 1

2,3625

2,3455

EEK 1

0,59

0,5757

Currency

Weighed average 2006

December 2006

NOK 100

115,33

117,34

DKK 100

124,3

125,69

EUR 1

9,2521

9,367

GBP 1

13,5101

13,654

PLN 1

2,292

2,292

EEK 1

0,6016

0,5983

CUSTOMER AND CREDIT RISKS The Group has approximately 20,000 purchasing customers in total. The largest individual customer accounted for approximately 6.6% (8.3) of sales. The five largest customers accounted for 12.1% (15.6) of sales and the ten largest customers accounted for 15.8% (20.4) of sales. The distribution of risk is thus very good. Customer losses during the year amounted to SEK 0.5 million (1.2), which corresponds to 0.03 % (0.08) of sales. The average credit period rose to approximately 40 days.

N O T E 2 5 . O P E R AT I O N A L L E A S I N G THE GROUP 2006

PARENT COMPANY 2005

2006

2005

Leasing agreements where the Company is the lessee Non-redeemable leasing payments amount to Within one year Between one and five years Longer than five years Total

8.7

7.5

0.4

0.8

22.0

21.8

0.2

0.4

-

-

-

-

30.7

29.3

0.6

1.2

Most of the above operational leasing relates to rent for premises.

FINANCIAL REPORTING ❚ OEM ANNUAL REPORT 2006

71


N O T E 2 6 . C A S H F L O W S TAT E M E N T ADDITIONAL INFORMATION CONCERNING CASH FLOW STATEMENTS:

THE GROUP 2006

PARENT COMPANY 2005

2006

2005

S P E C I F I C AT I O N F I N A N C I A L I T E M S Interest received

2.7

2.4

2.3

Capital gain profits

-

-

101.5

-

Dividends received

0.0

0.0

3.7

33.1

-2.4

-1.9

-0.3

0.0

Depreciation

13.5

12.6

1.8

1.7

Capital gain profits

-2.0

5.9

-103.3

-

1.1

8.6

0.3

0.2

Interest paid

2.1

SPECIFICATION ITEMS NOT INCLUDED IN THE CASH FLOW

Other Write-off shares Total

-

-

-

3.5

12.6

27.1

-101.2

5.4

A C Q U I S I T I O N O F S U B S I D I A RY C O M PA N I E S - G R O U P

ACQUIRED ASSETS AND LIABILITIES Intangible fixed assets

11.1

-

Tangible fixed assets

11.8

1.2

Inventories

4.6

6.8

Operating receivables

4.4

7.0

Liquid funds

7.3

0.1

39.2

15.1

Total assets Latent tax liabilities

4.1

-

Current operating liabilities

5.2

15.0

Total liabilities

9.3

15.0

Prepaid purchase sum

26.8

10.0

Deducted: Liquid funds in the divested business units

-7.3

-0.1

Impact on liquid funds

19.5

9.9

PURCHASE PRICE

D I V E S T M E N T O F S U B S I D I A RY C O M PA N I E S - G R O U P

DIVESTED ASSETS AND LIABILITIES: Intangible fixed assets

6.4

-

Tangible fixed assets

10.1

0.7

Inventories

28.1

3.3

Operating receivables

29.2

10.4

Liquid funds Total assets Current operating liabilities

-

0.1

73.8

14,5

0.5

6.6

45.4

7.1

45.9

13.7

Sale price

120.0

1.0

Due in accordance with agreement

-45.6

-

74.4

1.0

-

-0.1

74.4

0.9

Current interest-bearing liabilities Total liabilities PURCHASE PRICE

Purchase sum received Deducted: Liquid funds in the divested business units Impact on liquid funds

LIQUID FUNDS Liquid funds currently only cover cash and bank balance.

72

OEM ANNUAL REPORT 2006 â?š FINANCIAL REPORTING


N O T E 2 7 . I N F O R M AT I O N A B O U T T H E PA R E N T C O M PA N Y OEM International AB (Publ) is a Swedish-registered public limited company with its headquarters in Tranås, Sweden. The Parent Company shares are listed on the Stockholm Stock Exchange. The address of the head office is Dalagatan 4, Box 1011, Tranås, Sweden. The consolidated financial statements for 2006 incorporate the financial statements of the Parent Company and its subsidiaries, jointly referred to as the Group. The Group also includes shareholdings in associated companies.

N O T E 2 8 . E V E N T S A F T E R B A L A N C E S H E E T D AT E OEM International AB has acquired 50% of the shares in Crouzet AB from Crouzet Automatismes SAS, and thereby owns all the shares in Crouzet AB. The purchase price amounts to EUR 0.6 million, which corresponds to 50% of the company’s net assets. Crouzet AB has operations in Sweden within the automation component segment and had reported sales of SEK 51.6 million with a profit before appropriations and tax of SEK 3.4 million in 2006. SEK 18 million of the invoiced sales were for deliveries to OEM Automatic. The acquisition means an annual increase in sales of SEK 30 million for the OEM Group but is expected to have an insignificant impact on the OEM Group’s profits in 2007. The business will gradually be integrated into OEM Automatic AB and OEM Motor AB.

EFFECTS OF THE ACQUISITION Booked value in Crouzet AB

Tangible fixed assets Intangible fixed assets Inventories Accounts receivable and other receivables Liquid funds Latent tax liabilities

Fair value adjustment

1.6

Fair value in the Group

1.6

-

0

4.1

4.1

7.1

7.1

11.6

11.6

-1.4

-1.4

Accounts payable and other liabilities

-11.8

-11.8

Net identifiable assets and liabilities

11.2

50% of above Group goodwill

0

11.2 5.6 -

Purchase sum paid

-5.6

Cash and bank balance (acquired)

11.6

Net cash flow

6.0

N O T E 2 9 . I M P O R TA N T E S T I M AT E S A N D A S S U M P T I O N S Executive management has together with the chairman of the Board and the auditors discussed the developments, the choices and the information regarding the Group’s most important accounting principles and estimates, as well as the application of these principles and estimates. Certain important accounting-related estimates that have been made in the application of the Group’s accounting principles are described below. Divested business units In calculating the profit of divested business units, SEK 3 million has been reserved in the accounts since the final payment in accordance with the agreement amounting to SEK 11.4 million will be made on 31 December 2007. The agreement includes provisions for accounts receivable and deliveries, etc. Impairment test of goodwill In calculating the recoverable value of cash-generating units for the company’s assessment if amortisation is required for goodwill, future circumstances and estimates of parameters have been assumed. An account of these is described in Note 13. The management is of the opinion that no reasonable changes in the key assumptions will lead to the estimated recoverable values for the units being lower than the reported values. Valuation other intangible fixed assets Other intangible fixed assets consist of the values arising at acquisition, divided into SEK 8.8 million for supplier relations and SEK 8.7 million for customer relations. Supplier relations have continued to develop positively, explaining the assessment that impairment is not necessary for 2006. Customer relations entail establishments on new markets and the assessment is that these will be written-down over a five-year period. For more information, refer to Note 14.

FINANCIAL REPORTING ❚ OEM ANNUAL REPORT 2006

73


P R O P O S E D A L L O C AT I O N O F P R O F I T S

PARENT COMPANY The following surplus is at the disposal of the Annual General Meeting Surplus brought forward

263 347 812,23

Profit for the year

95 108 326,62 358 456 138,85

The Board of Directors proposes that the surplus be disposed of in such a way • that a dividend of SEK 8.50 per share is paid to shareholders • that the following be carried forward

65 646 375,50 292 809 763,35* 358 456 138,85

*) The Board of Directors has also proposed that the Annual General Meeting held on 24 April 2007 decides on an automatic redemption procedure of shares entailing a 4:1 share split, whereby one (1) share will be redeemed for SEK 20. In total, about SEK 154 million with thereby shift to the shareholders in addition to the proposed cash dividend. The proposal also includes a bonus issue with the objective of restoring the share capital through which funds from the non-restricted equity is to be used.

TRANÅS, 28 FEBRUARY 2007

Hans Franzén Chairman

Ulf Barkman

Orvar

Pantzar

Lars-Åke Rydh

Agne Svenberg

Gunnar Eliasson

Jörgen Zahlin Managing Director

A statement by the Board concerning the dividend proposal will be published on the Company’s website and can be obtained on request. The Annual Report and the consolidated financial statements have been approved for issue by the Board of Directors on the above date. The consolidated income statement and balance sheet and the Parent Company’s income statement and balance sheet will be matters for approval at the Annual General Meeting on 24 April 2007.

74

OEM ANNUAL REPORT 2006 ❚ PROPOSED ALLOCATION OF PROFITS


AUDITORS’ REPORT T O T H E A N N U A L G E N E R A L M E E T I N G O F O E M I N T E R N AT I O N A L A B ( P U B L . ) C O R P O R AT E I D E N T I T Y N U M B E R 5 5 6 1 8 4 - 6 6 9 1

We have examined the Annual Report, the consolidated financial statements, the accounting records and the administration of the Board of Directors and the Managing Director of OEM International AB (Publ.) for the financial year 2006. The Company’s Annual Report is included in the printed version of this document on pages 37-74. The Board of Directors and the Managing Director are responsible for the accounts and the administration of the Company, and for ensuring that the Swedish Annual Accounts Act is applied when preparing the Annual Report and for ensuring that the international accounting standards IFRS, as approved by the European Union, and the Annual Accounts Act are applied when preparing the consolidated financial statements. Our responsibility is to express an opinion on the Annual Report, the consolidated financial statements and the administration based on our audit. We conducted our audit in accordance with generally accepted accounting standards in Sweden, which meant that we planned and performed the audit to obtain reasonable, but not absolute, assurance that the Annual Report and the consolidated financial statements are

free of material misstatement. An audit includes examining a selection of the documentation with respect to amounts and other information in the accounting records. An audit also includes assessing the accounting principles used and their application by the Board of Directors and the Managing Director, as well as evaluating the important assessments made by the Board of Directors and the Managing Director when preparing the Annual Report and the consolidated financial statements, as well as appraising the overall presentation of information in the Annual Report and the consolidated financial statements. As a basis for our pronouncement on discharge from liability, we have examined significant decisions, actions taken and circumstances at the Company in order to determine the possible liability to the Company of any Board Member or the Managing Director. We have also examined the question of whether any Director or the Managing Director has otherwise acted in contravention of the Swedish Companies Act, the Swedish Annual Accounts Act or the Company’s Articles of Association.

We are of the opinion that our audit gives us reasonable grounds on which to pronounce as follows. The Annual Report has been prepared in accordance with the Swedish Annual Accounts Act and, consequently, provides a true picture of the Company’s income and position in accordance with generally accepted accounting practice in Sweden. The consolidated financial statements have been prepared in accordance with international accounting standards IFRS, in line with the requirements of the European Union and the Swedish Annual Accounts Act, and provide a true picture of the Group’s income and position. The Directors’ Report is consistent with the remainder of the Annual Report and the Consolidated Financial Statements. We recommend that the Annual General Meeting adopt the income statement and the balance sheet of the Parent Company and of the Group, appropriate the Parent Company’s surplus as proposed in the Directors’ Report and grant the Members of the Board and the Managing Director discharge from liability for the financial year.

TRANÅS, 2 MARCH 2007 KPMG Bohlins AB

Niklas Bengtsson Authorised Public Accountant

AUDITORS’ REPORT ❚ OEM ANNUAL REPORT 2006

75


OEM shares OEM’s shares were quoted on the Stockholm Stock Exchange’s OTC List in December 1983, and since then have displayed a healthy price trend. Anyone who purchased 100 shares in OEM for SEK 12,500 at the time of introduction onto the market would have had a holding of 2,400 shares at a value of SEK 453,600 on 31 December 2006, equivalent to an annual yield of about 16%, excluding dividends.

OEM’s shares were transferred to the O List in

trading days, with an average turnover per day

acquisitions. We have minimised the

2000. Effective 2006, the shares are listed on

in 2006 of 8,982 shares. On 29 December 2006,

disadvantages which this can entail, that is,

Stockholm Small Cap.

OEM International had 2,477 shareholders,

that the number of shareholders is decreased

an increase of 38% since 1996. Institutional

and the liquidity of the share declines, by

PRICE TRENDS

ownership stands at around 36%, while

mainly purchasing large blocks of shares.

The price of OEM International shares rose

overseas ownership amounts to 25%.

during the year by 16% to a closing price of SEK 189. The highest price paid during the year was

REPURCHASE OF SHARES

OEM International has signed an agreement

SEK 193.50 recorded on 19 December, and the

The repurchase programme for shares, which was

with Handelsbanken Capital Markets regarding

lowest price was SEK 153, recorded on 13 June.

adopted for the first time by the Annual General

liquidity guarantees for Company shares. The aim

Meeting in 2000, is intended to improve our

is to reduce the difference between purchase

SEK 1,460 million. During the year, the Stock

capital structure and contribute positively to return

and sales prices. The goal is to achieve a lower

Exchange’s OMXS PI index rose by 23% and

on shareholders’ equity and earnings per share.

investment cost and to lower the share trading

OEM’s market value at the close of 2006 was

the index for OMXS Industrials rose by 30%.

After implemented reductions the previous

risk for present and future shareholders.

year there are 7,723,103 shares in the Company

Commitments fall within the scope of the

SALES

at year-end. The Company held no company

Stockholm Stock Exchange system with liquidity

During 2006, 212,000 Class A shares and

shares at year-end.The Board has been authorised

guarantees and started on December 1, 2004.

1,826,982 Class B shares were sold,

by the Annual General Meeting to repurchase

corresponding to a turnover rate of 23%.

up to 10% of the total number of shares, that is,

RISK

772,310 shares. The objective is to continue the

OEM’s beta value - a measure of how a share

retains their shares for about four (4) years.

repurchases up to 10% of the total number of

moves given a change in the stock exchange’s

The corresponding figure for the Stockholm

shares while the Board considers the conditions

OMXS PI index - is approximately 0.36.

Stock Exchange as a whole in 2006 was 148%

to be attractive.

This means that the shares can be said to have a

The average shareholder in OEM therefore

and 95% for the Stockholm Small Cap. OEM’s Class B shares were sold on 90% of the

76

LIQUIDITY BOOSTING MEASURES

OEM ANNUAL REPORT 2006 ❚ OEM SHARES

The acquired shares will be retained, deregistered or used as payment in corporate

low risk. The spread between the operations within the Group entails a low business risk.


At the same time, the financial risk is very low,

DIVIDEND

2 of this Annual Report. Financial information

due to the high equity/assets ratio. This means

The Board proposes a dividend of SEK 8.50 per

is also published on the Group’s website

that the equity/assets ratio can be lowered to

share, equivalent to 12% of distributable equity

(www.oem.se).

correspond better with the business risk with-

in the Group.

The Company offers shareholders the

out the overall risk to OEM’s shares increasing significantly.

opportunity to receive interim reports and FINANCIAL INFORMATION

other press releases by e-mail, at the same time

OEM aims to maintain high quality as regards

as they are made public to the market.

DIVIDEND POLICY

information to the market and the media.

Please send an email to: info@int.oem.se and

The Board of OEM International aims to

The goal is for the information to facilitate an

state “Corporate Information” and you will be

propose a reasonable dividend of profits to the

accurate valuation and liquid trading of the

placed on our list for future mailings.

shareholders, by considering the financial

shares. The dates for the Annual General

position, the tax situation and any need for

Meeting, interim reports and annual report

acquisitions or investments in the operation.

for the 2007 financial year are shown on page

OWNERSHIP STRUCTURE OEM’S LARGEST SHAREHOLDERS AS OF 29.12.06

No. Class A shares

No. Class B shares

Percentage share capital

Percentage votes

Pantzar Orvar

542 440

934 120

19.1%

28.9%

Franzén Hans and family

426 792

464 530

11.5%

21.5%

Svenberg Agne and family

407 800

169 162

7.5%

19.3%

Investmentaktiebolaget Latour

212 000

309 000

6.8%

11.0%

Lannebo equity funds

495 567

6.4%

2.3%

AFA Försäkringar

410 415

5.3%

1.9%

Livförsäkringsaktiebolaget

216 600

2.8%

1.0%

IF Skadeförsäkrings AB

190 400

2.5%

0.9%

SEB Privat Bank S.A

147 300

1.9%

0.7%

Länsförsäkringar Jönköping

140 000

1.8%

0.6%

3 477 094

65.6%

88.1%

2 656 977

34.4%

11.9%

1 589 032

6 134 071

100.0%

100.0%

10

1

Total 10 owners

1 589 032

Others Total Votes per share

OEM SHARES ❚ OEM ANNUAL REPORT 2006

77


K E Y I N D I C AT O R S F O R O E M ’ S S H A R E S F O R T H E PA S T F I V E Y E A R S

2006

2005

2004

2003

2002

PERFORMANCE KEY INDICATORS Sales per share

SEK

187

181

186

188

196

%

3.3

8.1

-1.0

-4.1

-17.9

Earnings per share*

SEK

11.76

10.78

8.41

4.14

1.88

Shareholders’ equity per share*

SEK

82.96

63.14

56.13

51.44

53.06

Proposed dividends

Increase in sales per share

SEK

8.50

7.00

5.50

4.50

4.50

Dividend/Income

%

72.3

64.9

65.4

109

239

Dividend/Shareholders’ equity

%

10.2

11.1

9.8

8.7

8.5

SEK

14.68

9.79

11.90

17.75

19.95

Cash flow per share*

R I S K K E Y I N D I C AT O R S Beta values (48 months)

0.36

0.44

0.54

0.41

0.49

%

26.4

10.0

8.3

6.6

10.7

Quoted price as per 31 December

SEK

189.00

163.50

118.00

102.00

77.00

Quoted price as per 31 December

SEK m

1 460

1 238

893

776

602

Rate of turnover for shares

VA L U AT I O N K E Y I N D I C AT O R S

P/S ratio

times

1.0

0.9

0.6

0.5

0.4

P/E ratio

times

16.1

15.2

14.0

24.6

40.9

145

Price/Shareholders’ equity

%

228

259

210

198

EV/Sales

times

0.8

0.8

0.6

0.5

0.4

EBIT multiple

times

9.7

10.3

9.3

13.4

16.4

%

4.5

4.3

4.7

4.4

5.8

Direct return

* Calculated on the basis of the number of shares, excluding own holding The key indicators for 2006 are based on the remaining business units. In order to present a comparison, the figures for 2005 have also been recalculated.

12

100

10 75

10 8

8 6 6

50 4

4 25 2 0 Earnings per share (SEK)

78

OEM ANNUAL REPORT 2006 ❚ OEM SHARES

0 Shareholders’ equity per share (SEK)

2 0 Proposed dividend (SEK)


O W N E R S H I P D ATA AS PER 29.12.06*

Percentage of no. of owners

Percentage of share capital

1-500

71.2

4.0

501-1 000

13.3

3.5

1 001-2 000

6.8

3.4

2 001-5 000

4.8

5.1

5 001-10 000

1.8

4.2

10 001-20 000

1.0

4.5

20 001-50 000

0.3

2.7

50 001-100 000

0.2

5.2

100 001-5 000 000

0.6

67.4

100.0

100.0

Size class

Total Total number of shareholders in OEM is 2,477.

*) Source: VPC AB. Directly and fund manager registered. In the table, ownership details may be a combination of several items in VPC’s statistics. This combination is intended to show an institution’s or a private individual’s total ownership in OEM.

S H A R E C A P I TA L T R E N D

Year

Transaction

Change in share capital, SEK M

Total share capital, SEK M

Total no. of shares, qty

Face value per share SEK

Opening value

0.1

0.1

500

100

1981

Bonus issue

0.3

0.4

4 000

100

1983

Split

-

0.4

40 000

10

1983

Bonus issue

0.4

0.8

80 000

10

1983

New issue

0.8

1.6

160 000

10

1983

New issue

0.4

2.0

200 000

10

1986

Bonus issue

4.0

6.0

600 000

10

1986

New issue through conversion

0.4

6.4

636 000

10

1994

Split

-

6.4

1 272 000

5

1994

Bonus issue

6.4

12.7

2 544 000

5

1996

Bonus issue

12.7

25.4

5 088 000

5

1997

New issue through subscription in kind

20.1

45.5

9 113 703

5

2001

Reduction

-3.9

41.6

8 332 203

5

2003

Reduction

-1.0

40.6

8 132 203

5

2004

Reduction

-2.0

38.6

7 723 103

5

OEM SHARES ❚ OEM ANNUAL REPORT 2006

79


Addresses of operating units PARENT COMPANY

OEM AUTOMATIC

OEM ELECTRONICS

OEM International AB Box 1011, Dalagatan 4 SE-573 28 TRANÅS Sweden Tel: +46 75 242 4000 Fax: +46 75 242 4029 Email: info@int.oem.se www.oem.se

OEM Automatic AB Box 1011, Dalagatan 4 SE-573 28 TRANÅS Sweden Tel: +46 75 242 4100 Fax: +46 75 242 4289 Email: info@aut.oem.se www.oemautomatic.se

OEM Electronics AB Box 1025, Norrabyvägen 6B SE-573 29 TRANÅS Sweden Tel: +46 75 24 24 500 Fax: +46 140 36 06 99 Email: info@oemelectronics.se www.oemelectronics.se

Corp.id.no. 556184-6691

OEM Automatic OY Fiskarsinkatu 3 FIN-20750 TURKU Finland Tel: +358 207 499 499 Fax: +358 207 499 456 Email: info@fi.oem.se www.oem.fi

OEM Electronics OY P O Box 122, Telekatu 6 FI-020101 TURKU Finland Tel: +358 207 499 300 Fax: +358 207 499 496 Email: info@oemelectronics.fi www.oemelectronics.fi

OEM Automatic AS Postboks 2144 Bjørnstjerne Bjørnsonsgate 110 NO-3003 STRØMSØ Norway Tel: +47 32 21 05 00 Fax: +47 32 21 05 01 Email: info@no.oem.se www.oem.no

OEM Electronics PL ul. Parowcowa 6B PL-02-445 WARSZAWA Poland Tel: +48 22 86 32 722 Fax: +48 22 86 32 724 Email: info@oemelectronics.pl

OEM Automatic A/S Møllehaven 8 DK-4040 JYLLINGE Denmark Tel: +45 70 27 05 27 Fax: +45 70 27 06 27 Email: info@dk.oem.se www.oem-automatic.dk OEM Automatic Ltd Whiteacres, Cambridge Road Whetstone, LEICESTERSHIRE LE8 6ZG, UK Tel: +44 116 284 99 00 Fax: +44 116 284 17 21 Email: information@uk.oem.se www.oem.co.uk OEM Automatic Sp. z o. o. ul. Parowcowa 6B PL-02-445 WARSZAWA Poland Tel: +48 22 86 32 722 Fax: +48 22 86 32 724 Email: info@pl.oem.se. www.oemautomatic.com.pl OEM Automiatic OÜ Pärnu mnt 139d/1 EE-11317 TALLIN Estonia Tel: +372 6550 871 Fax: + 372 6550 873 Email: info.ee@oem.fi www.oem.fi EIG OEM Automatic spol. s.r.o Baarova 3a CZ-140 00, PRAG 4 Czech Republic Tel: +420 241 484 940 Fax: +420 241 484 941 Email: eig@telecom.cz www.eig.cz

80

OEM ANNUAL REPORT 2006 ❚ ADDRESSES


CYNCRONA

DEVELOPMENT

Cyncrona AB Tomtbergavägen 2 SE-145 67 NORSBORG Sweden Tel: +46 75 24 24 650 Fax: +46 75 24 24 651 Email: info@cyncrona.se www.cyncrona.com

Internordic Bearings AB Box 105 SE-571 22 NÄSSJÖ Sweden Tel: +46 75 24 24 940 Fax: +46 75 24 24 959 Email: info@internordic.biz www.internordic.biz

Cyncrona Oy Hannuksenpelto 12 FI-02770 ESPOO Finland Tel: +358 20 752 8700 Fax: +358 20 752 8770 Email: info@cyncrona.fi www.cyncrona.fi

IBEC Aartsdijkweg 111 NL-2676 LE MAASDIJK The Netherlands Tel: +31 174 52 51 00 Fax:+31 174 52 51 06 Email: info@ibec.biz www.ibec.biz

Cyncrona A/S Sindalsvej 21 DK-8240 RISSKOV Denmark Tel: +45 87 42 66 66 Fax: +45 87 42 66 77 Email: info@cyncrona.dk www.cyncrona.dk Cyncrona AS Postboks 2144 Bjørnstjerne Bjørnsonsgate 110 NO-3003 STRØMSØ Norway Tel: +47 32 21 05 80 Fax: +47 32 21 05 81 Email: info@cyncrona.no www.cyncrona.no Cyncrona Baltic States Suur-Jõe 62 EE-80042 PÄRNU Estonia Tel: +372 510 05 05 Email: baltic@cyncrona.fi www.cyncrona.com

OEM Motor AB Box 1011, Dalagatan 4 SE-573 28 TRANÅS Sweden Tel: +46 75 24 24 400 Fax: +46 75 24 24 499 www.oem-motor.se AB Indoma Box 319, Fridhemsvägen 25 SE-551 15 JÖNKÖPING Sweden Tel: +46 75 24 24 350 Fax: +46 75 24 24 358 Email: info@indoma.se www.indoma.se Telfa AB Box 120 30 SE-402 41 GÖTEBORG Sweden Goods terminal address: Karl Johansgata 158 SE-414 51 GÖTEBORG Sweden Tel: +46 75 24 24 450 Fax: +46 75 24 24 495 Email: info@telfa.se www.telfa.se

ADDRESSES ❚ OEM ANNUAL REPORT 2006

81


Definitions

Earning capacity of total capital: Operating income plus financial income as a percentage of average total capital. Earning capacity of capital employed: Operating income plus financial income as a percentage of average capital employed. Capital employed refers to total assets minus non-interest bearing liabilities, including deferred tax liabilities. Earning capacity of shareholders’ equity: Net profit for the year as a percentage of average shareholders’ equity. Average interest payable: Financial expenses as a percentage of interest-bearing liabilities. Debt/equity ratio: Interest-bearing liabilities divided by calculated shareholders’ equity. Calculated shareholders’ equity comprises shareholders’ equity plus minority interests. Operating income/sales: Operating income before depreciation as a percentage of sales. Profit percent: Earnings after financial income as a percentage of sales. Profit margin: Profit before tax as a percentage of sales. Capital’s turnover rate: Sales divided by total assets. Sales per employee: Sales divided by average number of employees. Equity/assets ratio: Shareholders’ equity as a percentage of total capital. Cash-to-current-liabilities ratio: Current assets minus inventories as a percentage of current liabilities.

Direct return: Dividend per share divided by the quoted price at year-end. Sales per share: The Group’s sales divided by the number of shares on the market at year-end. Sales increase per share: Increase of the Group’s sales per share. Dividend profit payout ratio: Proposed dividend in relation to the year’s profit. Dividend/Shareholders’ equity: Proposed dividend in relation to the Group’s shareholders’ equity and the minority interests. Cash flow per share: Cash flow for current operations divided by the number of shares. Beta values: Measure of historical change in the share price in relation to the price fluctuation of the general index. Rate of turnover for shares: The number of shares sold during the year divided by the number of outstanding shares at year-end. P/S ratio: Stock market value in relation to the Group’s sales. P/E ratio: Quoted price as per 31 December divided by earnings per share. Price/Shareholders’ equity: Quoted price divided by shareholders’ equity per share: EV/Sales: Enterprise value (stock market value + net liability + minority interest) divided by Group’s sales. EBIT multiple: Enterprise value divided by the Group’s operating income after depreciation. Direct return: Dividend per share divided by the quoted price at year-end.

Earnings per share: The Group’s net profit after deductions for both paid and deferred tax. Shareholders’ equity per share: Shareholders’ equity and minority interests divided by the number of shares. P/E (Price/Earning): Quoted price as per 31 December divided by earnings per share.

DEFINITIONS ❚ OEM ANNUAL REPORT 2006

82


â–ź

For easy access to definitions while reading the annual report, open the flap and lay flat.


CCJ Kommunikation

Box 1011, SE-573 28 Tranås, SWEDEN • Telephone +46 (0)75 24 24 000 • Fax +46 (0)75 24 24 029 • Email info@int.oem.se • www.oem.se

Annual Report 2006  

OEM Annual Report 2006

Read more
Read more
Similar to
Popular now
Just for you